"Is This Really a Thing?" Podcast Archives - Barry S. Miller College of Business

Paul Jarley: This would not have happened a year ago.

Valerie Moses with Addition Financial (00:02): Good morning. It is so great to see you all here today. We are so proud of our partnership with Dillon Gabriel and with UCF Athletics and with the College of Business, we’re a proud partner. You can see us at the student gate at any football game, so please come visit us. We are incredibly honored to sponsor this morning’s event and to get to hear from Dillon and from [Steven 00:00:24] as well, all about the NIL partnerships. This is such a huge brand new front here, I would say, in the world of sports business and something that we all really need to be paying attention to. So it is very exciting to see these partnerships really come alive, and we are so grateful for our partnerships here today.

Paul Jarley (00:44): Will this newfound right to publicity change college athletics forever?

Paul Jarley (00:48): This year was all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? On to our show.

Paul Jarley (01:08): Name, image and likeness is a legal concept that allows any person, including student athletes, the right to publicity, the ability to capitalize on anything that identifies them, including the ability to engage in third-party sponsorships and endorsements. Some people think this will change college athletics as we know it, others aren’t so sure. They think the marketplace will adjust, and that the benefits will accrue to a very few. To help sort through this, I’ve assembled three guests. Terry Mohajir is UCF’s athletic director, Brittney Duzan is the associate AD for compliance, and Scott Bukstein is an associate instructor in our DeVos Sports Business Management Program. Listen in.

Paul Jarley (01:51): As I understand NIL, this is being dealt with on a state-by-state basis. So what does Florida allow student athletes to do now that they couldn’t do before? Brittney, I’m going to throw that to you.

Brittney Anderson-Duzan (02:06): Sure. So, like most states, the state of Florida is one of the few that actually has a legislated piece for name, image and likeness. So essentially what they now have is the right to utilize their name, image and likeness for commercial purposes, so whether that be for money or not for money, that they weren’t allowed to do previously by NDA legislation. So basically, they have the right to publicity now.

Paul Jarley (02:32): They can print their faces on t-shirts. Can they get appearance fees? I’m trying to understand exactly what we’re-

Brittney Anderson-Duzan (02:39): Yeah. They can get appearance fees. It [inaudible 00:02:43] us now with what students on campus can do. So think outside of just those big endorsement deals, our student athletes can now do philanthropy work and actually use their platform as a student athlete for that.

Paul Jarley (02:53):For their own foundation, you mean.

Brittney Anderson-Duzan (02:55): Yep, they can create a foundation. Previously, they couldn’t go out on their own and utilize their name, image and likeness for a business. So if my student athletes want to go to the entrepreneurship office here on campus and want to start a business and use their name, Brittney Duzan’s makeup brand, they weren’t allowed to do that previously. They can do private lessons and actually use their name, image and likeness for that. Like you said, speaking engagements, autograph sessions, and then the stuff you’re seeing in the media, like these endorsement deals, and-

Paul Jarley (03:24): They could provide private lessons to like high school athletes.

Paul Jarley: Terry.

Terry Mohajir (03:28): The only thing that we can’t do is we can’t create the deal for them. So we cannot be involved in the deal, they have to create it themselves. People can ask us, “Hey, I want to talk to so-and-so.” We can put them in contact, but that’s it.

Paul Jarley (03:43): Okay. You can do that.

Brittney Anderson-Duzan (03:44):Yep.

Paul Jarley (03:44): Okay.

Brittney Anderson-Duzan (03:46): Yep. And what was odd was before, like with the private lessons, they’ve been allowed to do that forever with the NCAA, but the NCAA used to say, if I was the star tennis player, I couldn’t say me, Brittney Duzan, the number one for our tennis program, is giving private lessons. I would literally have to say, “Would you like to do lessons with me?” And couldn’t give my credentials because that would be using your name, image and likeness, which makes no sense because when you’re giving lessons, you’re going to want to give your credentials.

Terry Mohajir (04:11): You just couldn’t have a formal camp with your … you could [crosstalk 00:04:15] private. You couldn’t advertise it.

Paul Jarley (04:17): Okay. But now you could do a formal camp, Terry, is that true?

Terry Mohajir (04:19): Mm-hmm (affirmative).

Paul Jarley (04:20): You could, okay.

Terry Mohajir (04:21): You could have the Dillon Gabriel quarterback camp. In the past, he could do private lessons, but not-

Paul Jarley (04:27): Yeah, yeah. Hey Scott, are there any good sources of data on NIL activities at the national level? Do we know what they’re doing?

Scott Bukstein (04:34): The data within the space influencer is one of the primary NIL marketplaces. From July 1st through October 31st, the first four months in which NIL activities have been allowed, social media content has represented 59% of all transactions within the NIL space on that one platform. If we look at another primary marketplace, Paul, Opendorse, posting social digital content represents right around 28% of total NIL compensation on the Opendorse deals marketplace. So right now, social media where college athletes are essentially functioning as brand ambassadors, they’re making posts, endorsing a company, right now that’s the primary activity area and also the primary revenue area. Now there’s a bunch of other NIL activation and monetization areas. For example, some student athletes are making personal appearances at places like restaurants, car dealerships, community events. Some student athletes are signing autographs. This could be on physical, or now on digital, trading cards, digital collectibles, NFTs.

Scott Bukstein (05:41): Some college athletes, they’re playing video games with fans through platforms such as YOKE Gaming. Student athletes will get paid to spend 20 to 30 minutes playing in a specific video game with fans. College athletes can generate revenue by providing shout-outs to fans on platforms like Cameo, or they can engage in sending text messages to fans on platforms like Subtext. Some college athletes have been selling apparel, other branded items, through platforms like [inaudible 00:06:09] and The Players Trunk. So here’s a neat possibility that we’re seeing emerge for group licensing collaborations within the space with university athletic programs, so that college athletes, they’re able to sell merchandise and memorabilia that have trademark protective university athletics program logos and colors.

Paul Jarley (06:26): So Scott, do you have any sense of what the total value of this market is? Like, even for just the influencer stuff, do you have a number?

Scott Bukstein (06:33): It’s difficult to capture. The main reason is, and we’ve seen this within the past couple weeks, not all of these deals are being disclosed. It’s reporting that’s been made voluntarily by some athletic programs and then by these marketplaces. So for example, Opendorse, which is one of the primary marketplaces, for the first four months of [inaudible 00:06:53] activities from July through October, if we look at total compensation for division one, 82.9% of all NIL related compensation through the Opendorse deals marketplace involve college athletes on men’s college sports teams, and the average compensation per deal was $686.

Paul Jarley (07:15): Those numbers aren’t eye popping to me. Particularly on a per-athlete basis, right, I mean, they’re pretty small potatoes.

Scott Bukstein (07:22): Yes.

Paul Jarley (07:23): I would assume that the best opportunities here are probably for superstars in either football or basketball in the revenue sports. Fair enough?

Scott Bukstein (07:34): Okay. For sure.

Paul Jarley (07:36): All right. So you went to kind of what’s my next question, I assume the star quarterback is in a pretty good position to maybe take advantage of this, but do you have any sense what percentage of your student athletes are probably involved in something related to this? I mean, are you even allowed to know?

Terry Mohajir (07:51): Well, yeah, she knows.

Brittney Anderson-Duzan (07:53): Yeah. I was going to let Terry take it because he does have a good grasp on it, but yes. So the state law does require student athletes to disclose their NIL activities. They don’t give a timeline for disclosure, but our student athletes do a pretty good job about disclosing what they’re doing. You’d be surprised, it’s a wide breadth of student athletes from the starting quarterback to bench warmers. We have some students who have a really big following on like TikTok, or really good on Instagram, and that’s where you’re seeing a lot of things happening right now. So I wouldn’t say it’s a huge percentage of our student athletes that are utilizing it, but it’s not just the star quarterback.

Terry Mohajir (08:31): Yeah, I would tell you Paul, that our female athletes probably have the most upside, especially the ones that have a very robust social media following. And they play better, I think, as far as for advertisers. And so I think if you start looking around the country, you might see bigger numbers with maybe a star quarterback, or a star basketball player, but you’ll probably see more of your student athletes that are females.

Paul Jarley (09:08): Terry, do you think this is going to impact recruiting at all and how colleges recruit?

Terry Mohajir (09:13): Absolutely.

Paul Jarley (09:15): Give me a sense of what you think’s going to happen there. I mean, we’ve talked before, right? Yeah. I thought you’d be going out and hiring social media experts and some brand experts to help the students develop this, and quite frankly, what you don’t want is UCF’s student athlete filling the blank on the headline for something that happened NIL-related that you had no control over. I mean, that’s what would freak me out.

Terry Mohajir (09:44): Yeah. I think the biggest concern I have is predatorial people that are promising the world and the sky, and they’re not able to deliver. The other thing is, what I’m finding out is you have people that want to help and want to use certain student athletes’ name, image and likeness, and then they have handlers that get involved that try to get way over market price. That’s a little bit of a challenge too. So I think this is going to correct itself eventually. From my understanding, going back to your question about recruiting, I think it’s really a strong recruiting tool as far as when someone says, “Hey, I’m going to go to this school because there’s a lot more NIL opportunities.” I think when you are in a metropolitan area, like we are in a top 20 DMA, as opposed to a traditional college town, that maybe the only thing in that college town is the school that doesn’t have a lot of industry, it’s a little bit more challenging.

Terry Mohajir (10:50): And I also think, just to be very candid, which I’m a very candid person, is there’s also a lot more opportunities to not use the rule why it’s intended for. It’s more to pay players.

Paul Jarley (11:05): Right, right. So boosters are going to oversell…

Terry Mohajir (11:09): [crosstalk 00:11:09] … there’s really no market value. If you are in a small SEC town and I’m using that, she loves that when I use … and your-

Paul Jarley (11:18): Let’s pick on Tuscaloosa, can we do that?

Terry Mohajir (11:22): Let’s call it Rich Point State, whatever, Rich Point State. And you’re a small little town, and you have boosters that are paying for name, image and likeness that live in two states over.

Paul Jarley (11:37): Yeah.

Terry Mohajir (11:38): You know that they’re industries in two states over. And also can work against you. If you have a star quarterback, well, I’ll just use an example, star quarterback at, if you have a [inaudible 00:11:50] company that spends money on name, image and likeness, and you pay a star quarterback at one school, and you’re not doing another school, it may hurt you on your advertising. So I use the car dealers, if you are promoting a quarterback at one school and you have a very competitive collegiate region, and you say, “Look, he’s sponsoring that quarterback,” why would I buy from him? That’s not my school. So I think you have to be very careful from an advertiser as well, because people are generally very parochial in how they spend their money, and they want to support people that they support their interest, if that makes sense.

Brittney Anderson-Duzan (12:30): And I feel like with recruiting too, just being part of the recruiting process sometimes-

Paul Jarley (12:35): Yeah, Brittney.

Brittney Anderson-Duzan (12:35): … is, you’re seeing a shift of the questions they’re asking or like, how are you going to market me as a school? So you’re looking at the school’s marketability, you’re looking at the town’s marketability. And then it’s also, I think, going to tie a little bit into, all right, well, we already have these student athletes or these kids that want to play their freshman year. I think they’re going to say, well, it’s going to be a more candid conversation because the starters are the ones potentially getting better deals. So you’re kind of seeing those conversations start in some of these sports with, all right, well how are you going to market me, which that conversation wasn’t happening a year ago.

Terry Mohajir (13:10):[crosstalk 00:13:10] … you could also see some of the student athletes that might have more of a realistic chance to play at the next level that really don’t want to mess with it either.

Brittney Anderson-Duzan (13:21): Yep.

Terry Mohajir (13:21): They just say, “I don’t want to mess with, I want to focus on my trade. I want to play in NFL, NBA, whatever it is, and I don’t really need any distractions.” And you can also see certain student athletes being distracted from it as well. So I think it’ll correct itself, just like all the stuff, and I really love the rule. Having been a former student athlete coach, I love the rule, the opportunity, because it’s intended to help the women’s soccer player write a children’s book, or help a young man have a passing camp or a shooting camp or something like that, and just like regular students. But it’s not intended for college X to get booster Y to pay a player $50,000 for no market value. And I hope this is being recorded because you can take that to the bank.

Paul Jarley (14:10): Yeah, no-

Terry Mohajir (14:11): [crosstalk] … because that’s not the intention of why we are doing this.

Paul Jarley (14:15): Sure, of course, Terry.

Terry Mohajir (14:16): [crosstalk 00:14:16] … people out.

Paul Jarley (14:18): So what flashed through my mind, I have to admit, when Brittney was talking, is the frightening scenario of NIL being available when Johnny Manziel was playing at Texas A&M, but we won’t actually put that in the podcast.

Terry Mohajir (14:31): No, that’s okay. That comes up often.

Paul Jarley (14:35): I mean, he’s sort of the poster child, right, in a way.

Terry Mohajir (14:37): No, because he was signing autographs for money, which actually, I don’t have a problem with that. If someone wants to pay him money for that, that’s fine. Now-

Paul Jarley (14:46): Remember Terry, A&M had it on their website.

Terry Mohajir (14:49): I know.

Paul Jarley (14:50): … and they’re selling it on their own website, but I’m also worried about agents here.

Terry Mohajir (14:54): Yeah.

Paul Jarley (14:54): I’m worried about agents approaching student athletes and saying, “Well, we’ll handle this, your image and likeness stuff for you now,” and this is a way for them to get in the back door. So are there guardrails on that?

Terry Mohajir (15:08): Well, that’s what my concern is. I was talking about the handlers.

Paul Jarley (15:11): Yeah.

Terry Mohajir (15:11): … and now there’s legit agents that have some legitimate opportunities to help a young person get to the next level in their professional sport. But then you have handlers that may not have the experience. You have uncles, aunts, cousins, brothers, that want to get involved that really don’t have the expertise. So we do have a couple forums that allows them to go on and get the professional help that they need. There’s a couple companies out there. One that actually was started by UCF grads is one company is called Icon Source. And it’s basically, after you register through the compliance portal, you can go on there and they can negotiate all your contracts, they handle all your name, image, likeness. It’s a resting place for your name, image and likeness that advertisers can go on there, it’s very clean. We also have services on campus that our student athletes can take advantage of, the legal services on campus that they can use, and I think they have. Brittney, I think you’ve …

Brittney Anderson-Duzan (16:24): Yeah, we funnel a lot of student athletes over, which has been helpful, because we can’t help them obviously work through contracts, but to Terry’s point, the most we can do right now is educate them on what to use and what to do. Because you are seeing some shifts where you’ve got agents who’ve worked in that professional realm who are saying, “Well, we’ll come do NIL with you,” and so just educating them on, well that’s not what their normal course of dealings is. They’re not used to dealing with those kind of contracts, so are you sure you want to work with that agent? So making sure before they sign anything that they’re going over to legal services and doing that. And what Terry’s talking about is third-party market places …

Paul Jarley (16:59): Yeah.

Brittney Anderson-Duzan (17:00): … and there’s a ton out there, and Terry did a great job of vetting some of them. But giving our student athletes the opportunity to say, look, you don’t need an agent to go out and find deals. Here’s a platform you can go on, where you can meet people that want you to do an endorsement deal with them, or want you to do a social media post with them, and you can work with them and the contract’s done there and vetted, instead of you going out and hiring someone that you don’t know. And then all agents have to register through our office, so they have to be licensed with the state of Florida. If they’re a professional, if they work with like the NFL, they have to be NFLPA certified. If they are an attorney, they actually have to be in good standing with the bar. So we do that kind of vetting and give our student athletes a bit of information before they go out and do things, just to kind of help as much as we can.

Paul Jarley (17:47): Scott has a bit of a different take on NIL and agents.

Scott Bukstein (17:52): From an agent perspective, I actually think that name, image, likeness is going to be helpful for student athletes. Currently, we have an amalgamation of state laws that have been completely ineffective at regulating agents, the NCAA has tried to regulate agents. So now from a student athlete perspective, you have some time to learn more about various agencies instead of picking the agency that agrees to charge the lowest percentage for commission on your rookie deal, instead of picking the agency that your basketball or your softball coach recommends. And all of a sudden NIL provides college athletes with an opportunity to learn more about these agencies, be more informed. But, most certainly, you’re going to have situations where an agent might offer to represent a college athlete for NIL marketing purposes. That agent would advance a large sum of money against which the player’s future marketing earnings would be credited, because historically, and this is unfortunate, but in reality, some agents have provided marketing guarantees as part of a broader effort to sign players for contract negotiation purposes.

Paul Jarley (18:52): So is NIL going to be the end of this, or do you think more legislation is coming to allow more kinds of activities? Look into your crystal ball. What do you think?

Terry Mohajir (19:04): Go ahead Brittney, I’ll give you my honest opinion.

Brittney Anderson-Duzan (19:09): I mean, honestly, I think any opinion I’d give right now would be stupid because 10 years ago I would never have said that name, image and likeness would be-

Paul Jarley (19:17): I mean, that’s fair. Yeah.

Brittney Anderson-Duzan (19:19): So, do I think things will change? Yes, I think it’ll just continue to evolve as we move along, but I’m going to hold what I think’s going to happen. I’ll let Terry answer.

Terry Mohajir (19:32): So here’s my thought, and I’ve been doing this for long time now, been in AD for almost a decade, and I’ve seen it evolve and everybody was freaked out when we went to cost of attendance, we were allowed to pay up to the cost of attendance. I was very much in favor of it and it didn’t change the world all that much. It’s just became a budget issue for schools that wanted to pay it. However, in this day and age, what we have allowed to happen as a practitioner and people in my industry, we have allowed the media to hijack the narrative of who our student athletes are. I’m very passionate about. We tend to let people think that they’re employees, and so that’s the big topic right now on Capitol Hill, is that our student athletes employees, they’re not employees.

Terry Mohajir (20:30): When you talk to our student athletes today and ask them if they want to be employees, they do not want to be employees. They do not want to pay taxes. They do not want to be fired. They don’t want all kinds of stuff. They don’t want to have to get workman’s comp. They don’t want to have to get taxed on their housing, their apparel, and all that stuff. So now if they become employees, they get taxed on all that, their food, their shoes that we give them, the medical care, the pharmacy opportunities they have.

Terry Mohajir (20:56):

Paul Jarley (21:54): Yeah. That’s true on most campuses, Terry, right?

Terry Mohajir (21:57): Most campuses, I’ve worked at a school where basketball paid a lot of bills, universities. And so it was an elite basketball program. But I think that’s the key, I am concerned of this talk about employees versus non-employees, because when you get Capitol Hill involved and you get people that are trying to have political favor because they think it’s a very trendy thing to do, they’re not talking to the practitioners, including the students.

Paul Jarley (22:33): So it’s 10 years from now, will NIL have changed college sports in a fundamental way, or is it just going to be a benefit for a few star athletes? Scott, what’s your take?

Scott Bukstein (22:44): A pure financial perspective, I do think in our rights, they’re going to continue to assist many college athletes with professional career prospects and for sports such as football and basketball. In the long run, I think college athletes that benefit might end up being the ones who need the money the least. So what do I think we’re going to see within NIL? So we have this 10 year big picture vision. Within the next year to two, we’re definitely going to see more structure. I think we’ll see more formal classes within colleges of business, similar to a new credit hour, I think it’s a two credit hour class at BYU that is a Shark Tank-type component. We’ll see more workshops led by compliance staff. I also think we’ll see more strategy. So it’s just like esports and sports betting, where companies at first just rush into this space, I think companies now they’re just jumping into the NIL space without any [inaudible 00:23:32] strategy, or end goals, defined objectives. I also think we’ll see some type of consolidation within this space and emergence of several key leaders.

Paul Jarley (23:42): Terry, what do you think?

Terry Mohajir (23:44): I think it’ll be a benefit for a lot of athletes, because it gives athletes an opportunity to really do what it’s intended. You’re going to hear horror stories. We’re already starting to hear about the starting quarterback at these elite programs that came in as starters, now they’re not starting, so they’re getting their advertising dollars taken away from.

Terry Mohajir (24:09): … because they’re not playing anymore. So I think you’re going to start seeing advertisers be a little more cautious about putting their investments into 18-year-old.

Paul Jarley (24:17): That’s interesting.

Terry Mohajir (24:18): So I think that’s going to be happen, but I do think it’s what it’s intended to be. I talked to Chip LaMarca, he’s the one that sponsored the bill in the state, and I had a really good candid conversation with him. It is intended, for young people, to generate some extra money, to start a clothing company like Dillon Gabriel did, to write a children’s book, to be an equity actor. Our student athletes are in great shape to go be actors, or be able to take photos for advertising, like for a fitness magazine, or all that kind of, I think that’s going to be what’s going to evolve, and I think that’s great. I think it’s fantastic to-

Paul Jarley (24:59): What do you think Brittney?

Brittney Anderson-Duzan (25:01): I agree completely. I think the media is focusing on the recruiting aspect and the big stars and these giant deals, but the things that they’re not focusing on, which I think we’ll start to, are, I have some student athletes that I’m not going to out right now because they’re going to have things coming out, but they’re doing philanthropy work and are doing these things that, two and three years ago they could do to an extent, but now they can have total ownership of it. And they’re going to be able to take that, they’re not going to be going to the NFL or the Major Leagues. And they’re going to be able to show that on their resume when they go apply for a job.

Brittney Anderson-Duzan (25:34): This is something that I did while I was in college, and I think that’s going to continue. I think it’s going to grow, because the more that we get into NIL, and the more we understand where our student athletes land, because we have no data to look at, right? Like I don’t know how many student athletes want to start their own clothing company, how many student athletes want to be a social media influencer. So I think the next few years, as you see us kind of to get some historical data, we can start helping our student athletes, and I just think you’re going to see those areas grow as much as you’re going to see the endorsement side grow.

Paul Jarley (26:01): Well, and I mean, athletes are in a unique situation here to use their likenesses, but let’s not forget, I have a lot of students on campus in the College of Business who start foundations and businesses while they’re in college, and frankly we encourage that as much as possible, right? So I think [crosstalk 00:26:23] … it’s easy to forget they’re student athletes, right?

Terry Mohajir (26:26): Yeah. And I’ve always hesitated. I say student athletes, but I’m very cautious about saying student athletes. I just say our students most time. The population that Brittney and I serve, they’re students, they happen to be very talented in one area. They just are. I mean, I’m recruiting students, not to be athletes, I’m recruiting to your college. And other colleges. That’s what we do, we’re recruiting them to other colleges so they can get an education and degree and get a career, period. That’s it. We have lost our way in that narrative, we have lost our way as practitioners.

Paul Jarley (27:05): It’s my podcast, so I get to go last. A lot of my students want to be social media celebrities and to monetize their brand in some way. It’s incredibly hard to do. Sports give student athletes a little bit of a leg-up in trying to establish celebrity status, but it’s still really hard. Being a good student athlete doesn’t guarantee that people are going to find you interesting and worthy of their attention off the field. NIL is in its infancy. New things always draw attention, but the early return suggest it’s not going to be a big moneymaker for many student athletes. As this becomes more apparent, NIL’s ability to fundamentally change the college athletics landscape will fade. That said, there are some potential risks for students, athletes or not, in marketing their name, image and likeness. The potential for shenanigans by agents is especially troubling. And a course on this, offered by our marketing department, could be, well, a very good thing.

Paul Jarley (28:12): So what’s your take? Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show.

Paul Jarley (28:24): Special thanks to my new producer, Lesley Crews, and the whole team at the Office of Outreach & Engagement here at the UCF College of Business, and thank you for listening. Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Is Name, Image, Likeness in the NCAA Really a Thing? appeared first on Barry S. Miller College of Business.

Assorted Speakers:“Where’s the beef?” “Why is my six-count nugget now a five count nugget? Where’s my other nugget?” “You mean shrinkage?” “Significant shrinkage.” “So you feel you were short changed?” “Yes.”

Zemack-Rugar: So apparently if you reduced one dimension, but you make it longer, then people perceive the same size because we can’t assess volume.

Jarley (Host): : As Erin Turner would say, this is how they get ya.

Jarley: : This show is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? Onto our show…

Jarley: A couple of weeks ago, I read an article claiming that for a variety of reasons, some companies were cutting back on the size of their offerings rather than increasing their price. I was intrigued. So I sent an email out to the faculty and within an hour, I had 10 people who had volunteered to become part of a podcast on this subject. It made me think that shrinkflation was at the very least, well, an academic thing. Conflicting schedules reduced the size of our panel from 10 to five, but I have one economist and four associate professors of marketing with me today to talk about what’s going on. Muge Kullu, Yael Zemack-Rugar, Axel Stock and Anand Krishnamoorthy all hail from our Marketing Department. Listen in.

Ayson: Yes, we are. So if you look at TPI inflation, it’s called headline inflation. It has increased in the past three months. We went from below 2 percent to 2.6, 4.1. Now it’s just four points, 4.6. And then now it’s just at 4.9, uh, which is considered high based on the past three decades. And it’s high compared to the Fed implicit inflation target as well, which is 2 percent. So it is increasing.

Jarley: It’s a really odd situation here. We’ve had an economy that’s been largely shut down for a year. That’s coming back. Give me some sense of how much of this is sort of a supply chain issue and how much of it is due to other factors.

Kullu: Companies had trouble from the supply end, also from the demand end, you know, like people just ran to the store and cleaned off the shelves for toilet paper. So like demand went crazy and suppliers shut down first; China shut down. So, and that was a wave of shutdowns in different parts of the world in different parts. At times through the year and then logistics shut down, now there was a lot of trouble passing through the customs and the border shut down. There was a lot of challenges from both ends of the supply chain from both the supply side and the demand side, right?

Jarley: Uluc agrees.

Ayson: So that’s how it started on disruptions of supply chains. We call this in economics, we have this Phillips Curve. That’s how we describe inflation. Now as these two components, main components – cost push and demand pull. So on the supply chain, disruptions affect the cost per side of things. And now we have all this stimulus money and then infrastructure spending and also the normalization. So we’re kind of finding our feet that it means demand is picking up. So it was kind of pulling inflation. So we have both factors happening at the same time. There’s a third component, which is inflation expectations. That seems to be still anchored at low level.

Jarley: The market thinks this is temporary.

Ayson: That is correct.

Jarley: If I’m facing rising costs or shortages in my input, I really have three choices. I can raise my price, but I have two other alternatives. One would be to substitute in a less expensive input and that could be a quality reduction or, in some cases, I can shrink the size of what I’m selling you, which is what we’re going to call street place. But tell me a little bit about why companies would choose one or the other. And then talk to me a little bit about quantum pricing, Uluc.

Ayson: So it really depends on if you have competitors or not. So if you have close substitutes, so a lot of competitors, then you can’t afford to increase prices. So you have to make cuts other places, or you have to, as you say, decrease either the quality or the quantity. These companies that are doing this are mostly in the food and beverage industry, or they have a lot of competitors where there’s a lot of awareness or people pay attention to prices more so than they do to quantity.

Jarley: Cause it’s clumpy, right?

Ayson: And if I’m buying a box of cereal, that’s uh, 15 ounces and I, the company reduces the 14.5. It’s the same box. I’m not going to notice that, right? So I’m just going to pay attention to the price so they can do this, but we do live in this social media age. So if the word gets out, people as consumer awareness, I don’t know how, how much you can do this. How long you can keep this up?

Quantum pricing. First of all, is these companies that sell multiple products. I mean, I sell multiple products and I, um, place my products in these price ranges. So I, I have bunch of things that I sell at 5 99. I have other things that I sell at 3 99. So instead of moving it from 3 99, 9, 9 to 5 99, I just adjust the quantity. I saw it reduced the quality, as you’re saying,

Jarley: Uluc gave us a lot to unpack here. So I’m going to ask my marketing colleagues to help me break this down. Well, we’ll let you know it’s food as the most obvious place for shrinkflation, but can you give me a few other examples? Muge…

Kullu: First class and business class and economy class seats in an aircraft. Still, we are talking about the size and the critical resource we are talking about is the aircraft space. You know, there have been airlines who offered all business and they’re full of the aircraft, like 50 seats instead of 250, right? So you can put 250 economy versus 50 business class. It is five times. It occupies five times the space. So which one is a better strategy is the company’s decision, given the profits per unit resource consumed. So that’s a very critical aspect of the product that companies should really focus on. Like for any profit may be high for a business class, but then you look at the amount of space it takes up from your aircraft, maybe economy like selling five economy, class seats, maybe more profitable. You know, the company should be careful about those kinds of decisions when they’re making these product blind product mix menus.

Jarley: And in an earlier conversation you and I had, and for our student listeners, right, increasing class sizes can be a form of form of shrink question, right?

Kullu: Exactly, exactly. To teacher student ratios, amount of time, you spend with an, um, representative in a bank, you know, in a service then why I’m at the time you can, you know, the resource, whatever the key resources, what are the expensive resource you’re talking about, then how much money is needed for each product becomes your decision makers?

Jarley: Anand, I thought I saw a recent article where Walmart’s thinking of eliminating all of its front-end personnel and just go to self checkout. Is that a form of shrinklation?

Krishnamoorthy: What is the biggest expense on the floor? It is people. Walmart, as it is, has a very few people on the floor. If much of it can be automated, then a lot of these cost savings can then result presumably in the lower prices that Walmart likes to tout. Anyway, because Walmart is about low prices. That is not as big a deal for some of these other players where pricing is not their key differentiator, but at Walmart it’s always about pricing. What can they do to bring prices down in a world where costs are difficult to strength, shrink, uh, labor, for example, that is the first way you can, uh, if a product shrinkage is not going to work, then you would look at shrinking on other expenses like labor. What a manufacturer is doing with shrinkflation is pretty much what Walmart or other retailers are doing with wages, because when it comes to a retailer, um, nearly all the product you put on the shelf is made by someone else. So then when it comes to your own product, so to speak, it is your employee labor force. And that is what you would like to shrink.

Jarley: So in general, are people more sensitive to price than they are changes in service or changes in packaging?

Krishnamoorthy: Yes. They are, and there are a lot of reasons why. The most obvious is that consumers tend to pay attention to top-line prices. They remember the price of the item. They do not remember the size or weight of the item. I can ask you a simple question. What was the size of a canned vegetable, a vegetable in cans, uh, 15, 20 years ago? What was the weight? Do you remember, anybody? It was 16 ounces. Why it’s a pound, right? The challenge is, is it even, you know what it is today, go to Publix and look. It’s 14 and a half ounces. Every can of vegetables is 14 and a half ounces. Why haven’t we heard about it? We are experts in the room. If we don’t know that the package has shrunk from 16 ounces to 14 and a half over the last 15 years, how in the world are consumers who are mostly clueless about these things are going to figure this out? Consumers remember, or at least pay attention, to prices.

Krishnamoorthy: They don’t pay as much attention to product sizing. Ice cream, for example. There was a study on ice cream consumption in Chicago that they found that consumers are four times as sensitive to changes in price as a package size drops. Clearly consumers notice that a lot more. I’m sure a Yael in the room can probably talk about the behavioral aspect, but the primary argument is that there’s a lot of consumer processing required to keep track of sizes, et cetera. That is…. pricing is slightly easier to remember. Pricing is something consumers always look at. So it’s slightly easier to process; hence, that is the thing that consumers pay attention to. And that is what they are most sensitive to

Jarley: Yael, you wanted to weigh in on this. Are we seeing the dark side of marketing here?

Zemack-Rugar: Dark side. So I agree with Anand and the prices are high sensitivity item. And I also completely agree that we do not look at labels to understand how many ounces they are. What is a serving, how many calories. These are not things we bother ourselves with. However, we do perceive sizes and we do notice changes in sizes. It’s so perceptually. So if you’re going to engage in shrinkflation, for example, maybe lower the quantity in the bag, but don’t change the size of the bag. So there’s fewer ounces of chips in there, but it looks like the same bag, just more air, then people won’t notice because they don’t read what’s on the package. However, if you shrink the package, they will notice and consistent with all the perceptual errors that we can generally live on.

Jarley: So, Axel, are there competitive pressures here as well? So I’m thinking for example, firms that have more competitors might have to play different sorts of games than ones with fewer competitors.

Stock: As I said earlier, you know, consumers might not react to the shrinkage because they don’t notice the shrinkage, but when they start consuming, then certainly one will notice, you know, I need another package to satisfy my consumption. So the way I see the market is, you know, there are different consumers, there’s different, demands. Or let’s say we have some low demand consumers and then we have some high demand consumers. So if the firm is basically shrinking the package, then our high demand consumers may have to purchase an additional package to satisfy their demand. Whereas the low demand consumers, they may be OK, but then the price per package will increase. But actually the matching of their demand with the amount of product that is provided may actually be advantages. So for those consumers, it may actually be that shrinkflation may provide an advantage.

Jarley: Okay. I need to make sure we’re speaking the same language here. When you talk about a low demand consumer, you mean someone who wants to consume a smaller amount of the product. So the example I’m going to use here, the 100-calorie pack, it comes to mind as an example of this, and I’m willing to bet the people who are purchasing the 100-calorie package are paying more for it on a per unit basis. They just got it in the bigger box. Am I right about this? And is that a low demand, Yael?

Zemack-Rugar: Clearly agree with Axel that some people prefer small quantities. And in fact, that creates an advantage for smaller packaging for certain products and your 100-calorie pack is an excellent example because it’s usually applied to indulgence products. So there are no 100-calorie packs for carrots, but there are usually for Oreos. And why, because we know we can’t control our own consumption of these indulgent goods, cookies, ice cream. So, the manufacturer helps us control it by giving us a small package. And then we pay a premium for that control, the premium that you pay to buy 10 individual size 100-calorie packs of Oreos over one package of Oreos. I mean, weigh them out at home, put them in little plastic bags. But we know once we open that package, it’s very hard for us to stop. And those little packages serve as a stopping point. And I think that’s one of the ways from a behavioral perspective that marketers can think about how to position smaller packages as a good thing, as a service to the consumer, as an improvement and innovation in their product. If they fall into these categories, then they can actually leverage shrinkage to both reduce the package size and increase the price. And so an added benefit.

Jarley: Yet Costco doesn’t stock giant bags of 100-calorie packages.

Zemack-Rugar: No, they do. They chose…they have boxes of like 25 bags of small bags of chips. It’s not size, maybe less a calorie consideration than a convenience consideration, but still, which is another dimension that gives an advantage to a smaller package. But still it would be cheaper to buy an enormous bag of Veggie Chips, then 20 individualized bags, but people buy individualized bags and then pay a premium for them.

Jarley: Anand, go ahead.

Krishnamoorthy: There are differences in terms of how retailers actually display unit prices. Costco is one of those stores that actually prominently displays the price per unit. Most stores do not. In fact, I think in 30 or 35 states, there is not even a law mandating that unit prices be displayed. And in the 10 states that have laws, it is all over the place. I can give an example with tea bags, for example, the same retailer. Let’s say you have one Brand A and Brand B. Under Brand A, you could say the price is 27 cents per bag. And Brand B, you would say the price is a $1.22 per ounce. So even within the same retailer, within the same product category, you could have many different ways in which unit prices are displayed. And if at all, the places you shop Costco is probably the one that hits the unit pricing on the head in terms of prominently displaying it. Of all the times. I’ve shopped at Costco, not once have we heard any consumer in the paper towel aisle debate choices of brands or products based on the unit price. That is a store that puts the unit price in font size 40. Then if consumers don’t pay attention to that at Costco, why would they pay attention to that at Publix where the unit pricing is in font size 2.

Jarley: There are other areas where permanent pricing is the norm. Let me give you an example: A gallon of gas is a gallon of gas and you see very little variance there. But I want to comment on this because we had an exchange around this price per square foot in housing is a pretty common metric.

Kullu: Price per square foot is actually a concave function. You know, the bigger the house, price per square foot goes down. But then you buy a bigger house. The price goes up, but the marginal increase is lower. As you go bigger and as a real estate construction company, it is really very challenging to make decisions because you have to do it well before you know anything about how much customers are willing to pay. You know, that is kind of a very scary, very risky industry. So one thing that we’re looking at is how big these houses should be and should they have any flexibility? And what we find is flexibility is key to product line flexibility. That’s what we call it. You know, just the firms should be able to make changes as they go and plan. Yes, they buy the land, but they keep their options open. If they want very large luxurious homes or just moderate model houses, no? Or if they want maybe big land and they will divide it into several subdivisions. Are all of them gonna be very luxurious? Are all of them going to be townhomes? Those are very different decisions. And the firm is flexible and keeps their flexibility in terms of decision-making and not finalize anything ahead of time, three years ahead of time, that’s much easier to survive when the resources are costly. Once again, when the land costs are significant, you know, if land is cheap, that’s really, you can get away with it much easily.

Jarley: I think we’ve established that you shrinkflation is real at least in the short term. Uluc, so let’s turn to the macroeconomic consequences of that. If you’re the Fed or the Treasury Department or the average consumer.

Ayson: On the macro front, one of the concerns is that that it might disrupt labor markets, because we found a company that cannot increase prices. Then I can maybe decrease my labor and the only way I can do that is to cut my workers at these low levels of inflation. I can’t lower wages. I can’t give you a cut. It’s very hard for me to do that. Instead of that, I lay you off or I make you work less hours, or, you know, I decreased our benefits, allowances and things like that. So that’s one concern. The second concern is about policy formulation. So to the extent that we can’t pick these things up, the increasing quantity, then inflation is not very informative. Or the Fed is the ultimate controller of inflation, right? So, and if they cannot see just this focus on headline inflation only, then they can’t see this shrinkflation. So they can’t, react to it. So that’s one of the complications of it.

Jarley: Do things ever reinflate? Anand, go ahead.

Krishnamoorthy: Yeah, so usually there is no incentive for a firm to unilaterally drop prices when inflation dies, because one you’re competing with other firms that as Axel pointed out earlier, there is no incentive. What is the biggest expense for firm? As we talked about, wages. If you cannot drop wages, why would you then drop prices and get the start in terms of margins? So it’s well known that prices are always stickier on the downside. That is, to put it in stock market terms in the opposite of stock market terms, price increases take the elevator; price decreases take the stairs. Why would you unilaterally drop prices? Because your costs have gone down, nobody else is doing it. And consumers are getting used to paying higher prices. Why then would you want to drop prices if you’re not seeing a whole lot of drop in demand because the top-line prices remain the same and your unit price has increased and your margins are better. Why would you want to change that?

Jarley: Muge, you wanted to add.

Kullu: I was going to talk about the airline industry and what happened during the 2009 crisis, the size of the seats and how, you know, I was talking about those fully business class seats in the aircraft. It was biggest hype before the crisis, you know, like 2006, 2007, all these, you know, silver jets, EOS, all these airlines fully focused on the business class. And, you know, they were talking about inflation in seat sizes and the resource consumptions. And with the crisis, when the crisis hit, they all went out of business. They could not survive. They could not sell. And all those airlines with full service, we call it the, all the cabins, they were able to rearrange their seat seats and remain in the business through those years, all those difficult years. And right now, we started seeing all those bins before the COVID, before the airline industry went into this most recent crisis.

Jarley: Yael…

Zemack-Rugar: So it’s about, it’s about customer value when you’re all in a competing space and you have to generate some value proposition that’s added to the consumer, right? You can do it in a variety of ways. You can innovate, have new products, the benefits features, or you can make your package bigger. And sometimes that is a path of least resistance. We would not see the supersizing wars that received, but let’s remember that as you inflate, you have to inflate by that much more, even just to return to the perception that you’re the same as before, right?

Jarley: Axel?

Stock: So I want to continue that discussion along those lines a little bit, just as Yael mentioned, when costs are dropping, then firms tend to want to offer more quantity as at least as an option. And here, basically we see like the opposite effect of what I pointed out earlier, which is now with bigger sizes being available, consumers who initially have a, let’s say, a low demand for the product, all of a sudden they’re tempted to consume more than they initially wanted. And in the era of fast food, it can lead to very negative effects for the consumers like overall consumption and the negative health effects like obesity and so on and so forth.

Jarley: Final question: It’s a year from now, is there still pressure to shrink your packages or do you think shrinkflation will be something that will be a historical artifact. Axel?

Stock: Because it is still going to be potential from strategy in general, it’s about firms about offering menus of choices for consumers. And so as you can increase your menu, you can basically tailor to a more different consumers, more precisely and potentially make more profit. So I think there’s still going to be supply chain problems, maybe in other industries, other than those that we have discussed today. And if firms can respond, if it’s a category where, you know, package sizes can easily be shrunk, then that will happen at least for some time.

Jarley: Yael, what do you think?

Zemack-Rugar: From a marketing perspective, if conditions are such that companies need to become wiser about their product lines and packaging and offerings, I would hope that we can see some more sophisticated marketing strategy. Product lines, right? Small, medium, large, which by the way, is another way to manage perception of size. Then we can see better segmentation, right? So when you talk about service level, that’s the size, too. So when companies have these smarter strategies of thinking about how they allocate their resources, their size, their, as Muge aptly called it, their limited and precious a resource that they have, that’s when we get more interesting things than just is the package of bigger or smaller.

Jarley: Anand…

Krishnamoorthy: Well, frankly, if inflation was with us 30, 40, 50 years ago. You look at canned vegetables, chocolate bars have shrunk in size. The curvature of bars of soap has increased over time, high curvature, lower material, lower costs. Shrinkflation has been with us for a long time. Airlines started doing economy, limited leg room, more economy seats way before COVID hit. So the point is it’s been with us way earlier than COVID was ever a phenomenon, and it is going to be with us far longer. Perhaps they may come up with a fancier term than shrinkflation, but the phenomenon is probably here to stay.

Jarley: Muge…

Kullu: It all comes down to how you manage your supply chain.

Jarley: Uluc…

Ayson: The supply line problems will dissolve and supply will meet up with demand. In that case, we’ll have healthy levels of inflation. Companies will not have to resort to shrinkflation.

Jarley: It’s my podcast. So I get to go last. Some of my colleagues didn’t give me a straight answer on the future of shrink inflation academics frequently struggle with simple yes or no answers consumers. On the other hand, all of us prefer a menu of choices, but as Axel notes, choice can be expensive. If firms think their customers are more sensitive to price, they’re going to find ways to cut corners and preserve margins. The real question in my mind is whether the consumer will be more or less price sensitive a year from now, and they are today. I’m betting less. People’s features are coming into focus. Consumers will become more acclimated to modest price increases, especially as supply chains work themselves out. And with a more robust job market, people are going to be willing to pay a little more to get what they want. As Anand notes, shrinkflation will never go extinct, but I don’t think shrinkflators will become the defining feature of this century’s Roaring Twenties.

What’s your take. Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my interim producer, Erika Hodges, who can’t get rid of this gig fast enough, and the whole team at the Office of Outreach & Engagement here at the UCF College of Business. And thank you for listening. Until next time, charge on!

The post Is Shrinkflation Really a Thing? appeared first on Barry S. Miller College of Business.

Paul Jarley: Eshwar, I’m going to start with you. What the heck is an NFT?

Eshwar Venugopal: I think the world is trying to figure it out.

Paul Jarley: This here was all about separating hype from fundamental change. I’m Paul Jarley, dean of the college of business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? Onto our show. (singing). On March 11th, CryptoPunk 3,100, a piece of digital art, sold for $7.6 million with an NFT. That broke the record set the day before by CryptoPunk 7804, which had sold for $7.5 million. Then on March 21st, Beeple’s the First 5,000 days sold for $69.3 million. Needless to say, people took notice. I took notice. Well, honestly, Josh told me to take notice. I was hesitant. This all seemed pretty esoteric. Techno geeks with stupid money doing techno geeky things, I thought.But then Forbes did an article. I noticed Christie’s auction house was involved. And so I started to send some emails and make some phone calls. My resident blockchain guy had an interest in this. The dean of arts and humanities, Jeff Moore, put me in contact with an artist interested in NFTs. The kicker was Jeff Stokes. Jeff is a member of my dean’s advisory board, with BNY Mellon, who put me in contact with their digital asset guy. If Alexander Hamilton’s bank was interested in NFTs, I figured I should be too. So to shed some light on this new phenomenon, we have with us today, Eshwar Venugopal, who is an assistant professor here in the finance department at UCF, Carla Poindexter, who is the professor of art at UCF, and Lory Kehoe, who is the director of digital assets and blockchain at BYN Mellon. Listen in.

Paul Jarley: Eshwar, I’m going to start with you. What the heck is an NFT?

Eshwar Venugopal: An NFT is basically a certificate of ownership of a digital group. Basically giving artists an ability to offer limited additions of their artwork. I’m going to use artists as an example over here, since we have Carla over here. But I have a problem with that, but I’ll come to it later on. But the idea is that you have a certificate of ownership and it is a limited edition product and it is more of a digital collection rather than a physical good. That’s how it has been envisioned. But things have been changing rapidly. These days, if you take some of the latest NFTs that are being minted, there is a physical aspect of it. One guy actually sold his house on NFT. So, things are a little bit blurry now, but if you take a look at it from a property perspective, it is just an ownership as a consumption good. That’s it.

Paul Jarley: Yeah. Let me be old school for a minute so I can understand this a little better. I can purchase an original Monet. I would go to someone who would be an expert in Monets who would say, “Yes, Monet really painted this.” And I would spend a kazillion dollars and I would put that Monet on my wall. But other people could reproduce that Monet. So when I buy the original Monet, I also didn’t really buy the intellectual property or the licensing of that Monet. All I bought was the original Monet. Carla, do you agree? That’s how this world used to work?

Carla Poindexter: Definitely. But you can also purchase the copyright.

Paul Jarley: But that would be separate though, right? That would be a separate buy.

Carla Poindexter: Definitely. Right. The Monet is probably, it depends on the piece, but sometimes it’s an open source image.

Paul Jarley: Okay, yeah.

Carla Poindexter: And sometimes it is not.

Paul Jarley: Okay.

Carla Poindexter: So, that is the difference.

Paul Jarley: I want to stay in the world I think I know, and then we’ll move to most of the world that I think we’re going to be in. The other analogy for me is, I’m a big baseball card collector.

Eshwar Venugopal: Oh, yeah.

Paul Jarley: And I’ve seen that a few… Akil Badoo, who’s this rookie for the Detroit Tigers, is actually issued a lot and in NFT. So I have a little bit of knowledge in the collectible area, only enough to be dangerous here. But the first thing I want to understand is what I actually own. I own a certificate of authenticity.

Eshwar Venugopal: Right. Let me actually give you an example with the baseball cards. So the other thing about NFT started with something called CryptoKitties. I’m not sure you know CryptoKitties.

Paul Jarley: Okay.

Eshwar Venugopal: So it’s basically similar to baseball cards.

Paul Jarley: Yeah.

Eshwar Venugopal: But a digital version with cats’ pictures on them. That’s how the entire thing started off. And essentially what you’re owning over there is the rights of ownership, or you can even think about it from a copyright perspective, through that particular kitty. The same way you have an authenticated baseball card, here you have a digital authenticated certificate of ownership. And it basically says that nobody else can claim ownership of this particular image, right? And the image is basically a set of lines and quotes, that’s it. You can claim in the public markets saying that, “I am the one who owns this baseball card or a CryptoKitty card,” and it can be easily verified and it can be verified digitally. If you have the baseball card, you have to call in, say, I don’t know what they’re called, but you probably have to call an authenticator.

Paul Jarley: Yeah.

Eshwar Venugopal: And somebody has to come in and verify the certificate of ownership and all of that. This just makes that process a bit easier and quick.

Paul Jarley: Let’s talk about what’s actually in the blockchain. If Carla had produced a work of art, for our listeners, Carla is a painter by trade, and she did a digital painting and she put it out for bid for an NFT. If somebody were to purchase that NFT, her artwork isn’t actually in the blockchain, correct?

Eshwar Venugopal: That’s correct.

Paul Jarley: Okay. Is it a link to the site? Is it a web address? What’s in the blockchain?

Eshwar Venugopal: So let me give you an example. I tried making an NFT last week. I took a picture of a monkey in Houston, I just uploaded it to Rarible and linked it to my Ethereum wallet and I tried minting. So when I minted, what happens is that Rarible has a unique code for my artwork or in this case, a picture of a monkey. And this particular picture gets uploaded into Rarible’s database, and there’s a link to it, and there’s a unique identifier. I can upload the full quality image or I can upload a lower quality image. It doesn’t matter, right? There’s a unique ID in Rarible for that particular thing. And that is the ID that gets embedded into the blockchain. It is not the actual image that is being uploaded into the blockchain rather a reference. And this reference is your identification for that particular image. So essentially no image is being uploaded into the blockchain, it becomes all the elements of the blockchain …

Eshwar Venugopal: Right.

Paul Jarley: Right? And decide to throw that in. So what is the verification process like?

Eshwar Venugopal: That is where things get a bit mucky and I’m not clear on how Rarible does this. Rarible basically says that, or at least… All platforms definitely will verify whether this person has the raw art or if it’s a 3D art, they ask for the source file. If the source is there – it is this particular person, that’s something to verify the ownership. However, that’s not a foolproof way of doing things. I’m assuming that these platforms go ahead on the web and do an image comparison with whatever is existing out there and see if those links back to you. That’s one way of verifying. I’m not exactly sure how each platform was doing it.

Paul Jarley: Okay. Then secondly, I have to assume that that company and its website and address is going to continue in operation.

Eshwar Venugopal: Yes. That’s the hope actually. But if Dot Com and even the recent ICO woman busted any evidence, it may not be true in the long run. It may be true for the next five years, but who knows what’s going to happen in the next 10 years?

Paul Jarley: I’m on the fees issue….

Carla Poindexter: Yeah. The fee is supposed to be very high.

Eshwar Venugopal: Yeah. So the fees really depend on how much pressure is there on the blockchain at this point of time. Given that the last couple of weeks has been crazy and everybody’s buying a lot of Bitcoins and Ethereum, the pressure was high and therefore the fees are normally higher. On average, the fees have been in the range of $30, just to say that this image belongs to this person, so getting an entry into blockchain. And that particular part is $30, but if you want to actually list your items for sale, then you have to move to something that is an auction website. I used OpenSea and over there, the fee was again, roughly around $40 or something.

So just right off the bat, before I even sell it, it’s $80. And on top of it, there’s a 2.5% commission for Rarible and they take it over. The good thing about this is that, I get a royalty every time this image is being sold and resold, right? The first time I get 100%. But every time it has been resolved, right? If I’m a popular artist, probably Carla has more experience on this, if a piece is getting resolved, I probably get, I set it as 10%, but many people… You have the option to set it as a 20 or even 100%. That likely keeps growing. That this is not the case in today’s scenario. Yes, Spotify and other mediums allow artists to get royalty, but it does not set up in this way that you get lifelong royalties. And I think it’s not to lose…. 10% is a huge number, in today’s standards.

Carla Poindexter: That’s the beauty of it I think. Because when an artist sells an artwork, they receive whatever. But when that gets resold and resold the artist receives nothing.

Eshway Venugopal: Yeah. Especially the physical ones, their structure. Yeah.

Carla Poindexter: Right. And I think that’s why this has been invented. And I think that’s what is so exciting about it.

Paul Jarley: That’s very helpful, Carla. So the incentive from the artist is to be able to capture more of the future revenue stream in the resale market of the item.

Carla Poindexter: Definitely.

Paul Jarley: Is that right, Eshwar?

Eshwar Venugopal: Yeah. That’s correct.

Paul Jarley: Carla is that right?

Carla Poindexter: Definitely. That’s the beauty of the whole thing.

Paul Jarley: Okay.

Carla Poindexter: Because, imagine as a young person selling a piece of art for $1,000, and then later in your life, when you have established a reputation-

Paul Jarley: Right.

Carla Poindexter: … same piece gets sold for $20,000. The original artist never sees anything.

Paul Jarley: So Lory, why did the bank become interested in an NFT?

Lory Kehoe: We got involved and our interest, and why we’re interested in NFTs, is simple in many ways, it’s because our clients have started asking us about NFTs. And some of our clients in the wealth management side started purchasing NFTs, and they’ve got in touch with the bank to understand how we can custody them. And also, we’re getting early stage questions in relation to… Over time as these entities increase in value or some of them already valuable, and to Carla’s points just there, could they be used as items of collateral over time? So I think what we’re seeing is, NFTs has a potential. Are they a potential store of value as well as being something that, I guess, consumers may make, collect and engage with? For me on the NFT front, and this, I think, plays neatly into what Carla was talking about there, the way I think about NFTs is down to three things. So A-M-C. A, is accessibility. NFTs provide access to something which was… Especially pieces of art or very expensive pieces of art or luxury cars, as the case may be. And provides access to things like that that were unavailable for most of society, right?

I wish I could afford a Rembrandt, but I can’t, but I may be able to afford a Non-Fungible Token or a token representing a small part. So that accessibility piece is that term that gets used a lot. The second area is, M, and that stands for marketplace. It creates a marketplace where people can buy and sell these tokens or whatever you want to call these or NFTs. And then the final piece is community is C. And I think the community piece is actually the really interesting part of this. So growing up here in Ireland, I used to have football or soccer cards, in US, you have baseball cards and things like that.

Paul Jarley: [crosstalk 00:13:43] Baseball cards right there. You joined us late. Yeah.

Lory Kehoe: Exactly, right? And that was cool and I could trade those with my friends, but I was limited in terms of the folks I could exchange those with. And now, due to internet, obviously I could do that anywhere. But I think what Non-Fungible Tokens have brought about is, and which is really interesting, is that, it is the convergence and merging of the fan experiences in terms of physical and digital. And I think the Kings of Leon have done that incredibly well and I think they’re going to be… Actually, we’re only at the start of that happening so, the Kings Leon issued a bunch of NFTs-

Paul Jarley: Now we are into music. Yeah. Okay.

Lory Kehoe: Exactly. So they issued, as part of their latest album, a bunch of NFTs. And if you bought a bunch of them, built into the NFT, because it’s programmable, right? It’s a programmable piece of technology that you own. And this is really where the magic is, they built in this Willy Wonka and The Chocolate Factory Golden Ticket.

Paul Jarley: Golden ticket.

Lory Kehoe: Exactly. But what it did is that, the golden ticket gave you access, or will get you access, when we’re back doing all this great stuff, to a front row seat or to meet the band backstage. So what we’re seeing is this blending of fan engagement at a physical level, but also at a digital level. And I think we’re going to see a whole host of more of those initiatives, which are going to be unlocked through things like NFTs.

Paul Jarley: If I were to make the naysayers argument, it would be this, and this is where I started when I first discovered NFTs, there is stupid liquidity in the market right now. There’s a bunch of money running around, it’s got to attach itself to something and now it’s attaching itself to a digital asset because there ain’t enough things for it to attach to. And then, when the world gets back to normal, this will all go away.

Lory Kehoe: Geez. What can I say there? I think there’s a number of points. I think the world going back to normal, I don’t know what that world is going to look like, right? I think the genie’s out of the bottle post COVID. So, I think COVID has accelerated digital agendas for companies and for individuals all around the world. And I think people are interested in communities now more so than ever. We want to be part of something where we felt that we weren’t in the past. I’ll give you an example, if I go to New York and I go visit a museum or something like that, it’s interesting, I’ll go back home and I might tell my mom, “I was there and I saw this painting.” But actually, I now have a mechanism where I’m able to bring her into what that story looks like.

I’m able to purchase an NFT or a token. I’m able to pass it onto her. She’s now part of that story. She understands what that piece of art is, the history associated to it. And there is that community associated with it. She may want to purchase more tokens as the case may be, she may want to pass it on to somebody else. So for me, I think there’s value in that level of ownership. I don’t think it’s pure speculation. I think there is, it comes back to that community play. And I think we’re, we’re at the beginning.

Paul Jarley: Do you think the consumption side is more important than the investment side? Because part of what you’re talking about is consumer… What you’re talking about there is really varied in consumption. You’re purchasing the experience to consume that experience, which is different than, I think this asset is going to appreciate in value and I’m going to be able to sell it at a multiple some years in the future.

Lory Kehoe: And I think it’s both.

Paul Jarley: Yeah.

Lory Kehoe: I’m a regular Joe, if I see a potential for an asset to appreciate in value, and I can afford that asset. Well, I might go down that path and make that investment as the case may be, as part of a balanced portfolio, naturally. But, if there’s an opportunity to purchase something instead of buying, a MoMA pen, for example, right? I’m able to do something a bit more interesting. I’m able to pass that on. I’m also able to bring that person, the recipient of my gift, into the world of NFT. So they’re not only getting that NFT and the story about the painting, but I’m also bringing them into how this whole world works, which I think is also another angle.

So it’s an interesting one. I was talking to somebody yesterday about this and they were saying… They asked me, would I be interested in potentially purchasing a token or an NFT, which represents part of a forest where I’m actively contributing to the de-carbonization of an area. My gut response was, tell me more, tell me more, I’m interested. So I think the consumption side and the investment side, I don’t think they’re mutually exclusive actually. I actually think they could converge and that’s probably where you’ve got an even better story.

Carla Poindexter: I love what you’re saying, Lory, because that’s the whole thing about art. There’s the community and the activity of investing in an artist. And then there’s the other side, that more people tend to think about when they’re not interested in art, and that is the investment side. And I think the community side has to come first and then it becomes authentic. You were talking about reputable companies getting into this and looking into it. I love it when someone says, “Think about an NFT supporting an artist.” Someone purchases that token, purchases that artwork, and that allows the artist’s reputation to grow. And it’s not so much about the thinking that, Oh, someday I’ll get to pass this along and make money. Of course, that’s part of it, but entering into it, the point of the consumer, I think, is a good way to talk. Love it.

Paul Jarley: What do you think, Eshwar? I want you to react to my comment about stupid liquidity.

Eshwar Venugopal: Okay. Yes. There’s a lot of stupid liquidity over here. So, just let me take a step back and see where the NFT thing came from. So I mentioned CryptoKitties a while ago, right? The company that started this CryptoKitty build, the first thing that they wanted to do was do NFTs for real estate and they decided not to do it because of the regulatory pushback that they got. To both Carla and Lory’s point, community actually comes first in these things. This started off as a toy, as Chris Dixon would say it, and it has garnered a large enough community now that regulators have started taking notice of it. And as you mentioned, there was a lot of liquidity over there. And I wouldn’t buy the argument that things are going to go back to normal, or at least what it was before after the COVID pandemic just because people won’t have enough time playing with this thing. Because there’s already enough interest that this is now a self-following process. More and more people are getting into it. And it’s not going to be just with the art market. That’s what I said earlier.

Paul Jarley: Yeah.

Eshwar Venugopal: I have a problem with NFT being more hyped with the art market, rather IBM and IBV they have been in talks about putting patents, the entire patent system onto the NFT platform or as NFTs. And therefore trying to evaluate how much each patent is worth by buying and selling, there’s an active secondary market for that. And also even Academia, if you think about it. Academia can use the form of an NFT. If you think about it, we pay fees to the journals, to get our work published, and the journals ask universities to pay subscription fees and the authors themselves, in many cases, won’t have the copyrights to these things. Rather, if you put it on a NFT, you actually give credit to these authors, you can monetize it if the patent becomes a successful or an industry source uses your model.

Paul Jarley: What keeps you up the most at night about NFTs? Lory.

Lory Kehoe: Look, I thought some of the points that were made earlier there were great around… I think it’s difficult to purchase, right? I think the friction associated with them, that will get solved, right? That’s just technology in an early stage and a new wave of technology. That gets solved and gets solved quite fast. And I think it already is beginning to, right? And that’s number one. Number two, I think on the energy intensive nature associated with them. I think that is a consideration. But I also see that getting solved as we move away from the complex consensus mechanisms in terms of proof of work, to proof of stake, to other new ones that’ll emerge. So, although I don’t have a solution right now, I do think that that will get solved.

So that’s number two. And number three, I do think also as well, sometimes it could be, Eshwar was talking about this, it can be very expensive to actually purchase the token. Not the token price, but the actual process in terms of paying the gas fee or the associated fees to purchase it. So I think that’s another area that will get solved. As those three things move forward and get solved, that provides more people with an easier route in. And then also what happens, is that, you’ll have a bigger stock of NFTs to purchase. Not just art, not just luxury cars, but a range of things. And what keeps me up at night is probably, me sitting on the edge of my bed, being excited as to what’s to come, rather than fretting as to what will come each bar.

Paul Jarley: Eshwar, what about you?

Eshwar Venugopal: Well, Lory actually has covered one of the many things that keeps me up. Well, the first is, the overall impact that has. But the more important thing is the interaction of this digital economy with the existing one, how it is going to play out. Because it’s a matter of sustainability and stability over a period of time for… Because, yes, you have a new digital asset in place, but how is it going to impact the value of dollar over a period of time. It’s going to affect the larger economy, right?

Paul Jarley: Yeah, it is.

Eshwar Venugopal: Adoption is exponentially, especially, as I think Lory mentioned earlier, the COVID pandemic has just accelerated the way people adopt to digital assets.

Paul Jarley: Yeah.

Eshwar Venugopal: So the government has to step in and if they step in, and let’s say all of a sudden, they put a moratorium on Bitcoin or even the NFTs and they think that something is not right over here. What would happen to the existing money inside the system?

Paul Jarley: Right.

Eshwar Venugopal: To your point about stupid liquidity, a lot of people have put their money into the NFT system and Ethereum and all the other things over here. So what is going to happen over there? The interactions and the fall out, or the shake up before things settle down is, what both excites me as a researcher, but also keeps me up as an average citizen because I have a lot of money in NFTs as well. What will I do …

Paul Jarley: Can they be hacked? Can NFT systems-

Eshwar Venugopal: Yes. Yes.

Paul Jarley: 10 years from are NFT’s going to be around and what are they mainly going to be used for? What do you think Eshwar?

Eshwar Venugopal: I really wish they transform into something a little bit more reasonable. I wish they are not focused on just artwork and there’s a better way to mint these NFTs. My problem with NFTs is that it’s expensive, number one, and it is highly carbon intensive.

Paul Jarley: Yeah.

Eshwar Venugopal: So we cannot sustain a world where we are burning carbon so much just for the sake of digital art, even though I have high praise for art. So I hope that things change and we find a better technological way to implement these things and have artwork. But there are much, much bigger applications or use cases there for NFT. One of them is the patent system, the other one could be academic publishing, knowledge sharing. I’m hoping that the system would change from what it was. It’s a tie now I want to want it to become an actual thing.

Paul Jarley: Carla, what do you think. Do you think artists are going to be dabbling in this 10 years from now?

Carla Poindexter: I think so. I think it’s complicated now. I think the safety factor, the understanding of that clearing house that we talked about earlier on before Lory got in. Where does one go to even create that contract and create that token? How does that entity, the Christie’s or the intermediary, how does that all work? And I think once it becomes easier for people to understand, it’s a little bit like cryptocurrency right now, what are we going to really purchase a fraction of Bitcoin? Or, what was it, Doge?

Paul Jarley: Dogecoin.

Carla Poindexter: The Elon Musk you know.

Paul Jarley: Oh, right.

Carla Poindexter: Oh my gosh, it broke in half overnight. So I don’t know, I think we need to understand more about blockchain technology that the every… The artists are not, like you said earlier, most of us tend to… We need a step by step process here and we have to feel that these things are safe because the art market has never been a safe place for artists.

Paul Jarley: Lory.

Lory Kehoe: In 10 years, it will be the NFTs for many different things. Certainly not just art, I think music is one area. I also think in 10 years on, what you’ll see is that, these pieces, these NFTs will be used as financial instruments. I think what tends to happen at a retail level is that as more people adopt pieces of technology… And we saw this in Bitcoin, it happened at a retail level, and then eventually it reached a certain scale and then institutions really started getting interested in it, and then the regulators have to get interested in it because of the impact to the overall financial system.

With NFTs, if it reaches a certain scale, it will then be, okay, is there an opportunity here, at an institutional level, to help, for BNY Mellon, for our clients, we’ll provide services around NFTs. What other purposes can those NFTs serve? If we’re custodying them, it goes back to that collateral point. So I don’t think that’s going to be today or tomorrow, but I think that’s something that will happen over time. I think we’re at the start of the journey, if anything, we’re maybe coming towards the beginning or the end of the beginning, but we’re no means at the beginning of the end when it comes to NFTs.

Paul Jarley: It’s my podcast, so I get to go last. New technology is seductive. It gets you thinking about endless possibilities. Techno geeks creating and spending millions on digital art is a bit like fashion designers creating originals for the Paris runway. The designers and models get a lot of publicity, but your spouse ain’t wearing that on date night. It’s not practical. When moving from theoretical possibility to practical solution, I like to ask two questions: first, which problem does this solve? And if it does solve the problem, is this solution economically efficient? The Fisher Pen company allegedly spent a million dollars developing a pen that could write in space, but astronauts used pencils. Carla and Eshwar helped me to understand what problem NFT solve for the creator. It allows them to capture some of the appreciation in value of their creation in the resale market. But as Carla noted, creators need to understand and trust that the private guarantor of this contract will still be around and able to enforce this agreement at the time of resale. And since fees are high and tokenization is environmentally irresponsible, it seems a good option only for a small number of relatively well-known creators, not the masses.

Lory is a classic early adopter. He gave us three motives for potential buyers. Most fundamentally, NFTs have created a market by solving the ownership problem, you don’t want to purchase the digital equivalent of the Brooklyn Bridge from some scammer. Access and community are tougher sells for me. People want to be part of communities and will pay for access and exclusive events. But NFT seem a gimmicky solution to a problem with simpler known solutions like VIP tickets. This leaves access via fractionalization. Fractionalized tokens may make it easier than putting together a syndicate to purchase an expensive asset. But I’m not sure at what price point a fractional NFT is worth the cost of mining it. And there are a host of legal issues here that will need to be resolved.

In the end, I favor an explanation for the rise of NFTs, offered by Anil Dash, one of its creators, in a recent article in The Atlantic. NFTs for high priced art represent one of the few places people holding a lot of cryptocurrency can cash in their investment. They can’t buy expensive yachts, they can’t buy Teslas, depending on the day, but they can buy high priced techno art from artists. This will allow famous artists to get richer and retain some of the rights at resale, but the masses of artists and investors, well, they’re likely to be left behind. Eshwar called NFT a toy, I would add, a toy for the rich, at least for the foreseeable future.

Paul Jarley: So, what’s your take. Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show.

Paul Jarley: Special thanks to my interim producer, EriKa Hodges, who can’t get rid of this gig fast enough, Kenny Butcher, who helped us make this podcast possible, and the whole team at the office of outreach and engagement here at the UCF College of Business. And thank you for listening until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Are NFTs Really a Thing? appeared first on Barry S. Miller College of Business.

GameStop and AMC made national headlines for unexpected reasons as retail investors from social media website Reddit began feverishly scooping up shares in each company. While the resulting drama caused wild swings in stock prices and scrutiny against some online trading platforms, the long term impacts remain to be seen. Did “Redditors” usher in a new era of retail stock trading? Or are these so-called meme stocks just another example of financial history repeating itself?

Paul Jarley:                         Remember the E-Trade Baby?

E-Trade Baby:                    A lot of people are like, “Isn’t it difficult to invest in the markets?” And I’m like, “Not if you’re using E-trade. Making a big investment is as easy as a single click.” Boom. I just bought some stocks.

Paul Jarley:                         I think he was the first meme investor. He didn’t last long.

E-Trade Baby:                    Wait, why is this line going down? Oh God, it just dropped 400 points. This is not happening. Dear Lord, I made a horrible, horrible mistake. ****

Paul Jarley:                         Or maybe he just moved onto the social media site, Reddit [crosstalk 00:00:31] and lost hundreds of thousands of dollars trading stock in GameStop. Turns out he’s just one of many.

E-Trade Baby:                    Take it back. Sell, sell, sell, sell, sell. Too late. It’s all gone.

Paul Jarley:                         This show is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, “Is this really a thing?” Onto our show.

Paul Jarley:                         So GameStop has obviously been in the news a lot over the last week, and to help me understand what’s going on here, I’ve convened a panel of experts. Kevin Mullally is an assistant professor in our finance department. Garrett Cummings is the president of our student investment club and a finance major. And I pulled in our own Josh Miranda, who knows a little bit about viral marketing and maybe viral finance to have a conversation about GameStop and its short-term and long-term implications. But I want to start out with a story. When I first came to UCF, one of the first groups I met with were some executives at EA sports.

Paul Jarley:                         And they said to me, “We know right now we’re a company that puts the $60 box in a GameStop for people to purchase, but we know that’s about to go away. We know that a few years from now, we will have developed into something like iTunes, where people electronically download whatever the game is into their console. And we think after that, we will become a company that offers various components of games that people can download and create their own game. And we want to understand that consumer more and what aspects of the games they like and dislike, so that we can meet that market demand when it comes.” Now, I raise that story because that was 10 years ago, and EA sports knew GameStop was dead then. So when I first heard the stories about GameStop, I have to admit my first reaction was, “Wow, they’re still around? Why would anybody invest in GameStop?” Is there a legitimate reason to believe that GameStop has a future? Kevin, do you want to kick us off? I’ll pick on you first.

Kevin Mullally:                 Yeah, absolutely. So I did a bit of researching that question myself, actually, kind of thinking the same thing, because as you guys probably know, at certain points during this whole incident, GameStop was actually more valuable as a company, as a going entity than was Best Buy. And again, my reaction is the same as yours.

Paul Jarley:                         Or Delta Airlines, I think I read somewhere.

Kevin Mullally:                 Correct, correct. So all kinds of crazy mis-valuations, very clearly. And so I looked back into the history of it, and kind of the thing that has come out is that there are actually quite a few people that were long in GameStop, even sort of middle of 2019.

Paul Jarley:                         Explain long, Kevin, for our listeners.

Kevin Mullally:                 Oh, I’m sorry. So they had established a position where they had held a good number of shares in that company. So they were investors in that firm mid 2019, early 2020, well in advance of any of this taking place. In the argument, one of the most famous guys that had established a pretty sizeable position in GameStop was Michael Burry, who listeners may be familiar with from the movie The Big Short. He was kind of one of the guys that very famously predicted that the housing market was going to collapse. And his argument for investing in GameStop was basically that it had been mismanaged, that they had a whole bunch of cash on their books, that they had been making a bunch of bad acquisitions, and just generally had poor management and a lot of managerial turnover at that time as well.

Kevin Mullally:                 And his argument was that, “Look, hey, if we can get these guys to buy back their shares, we can take cash off the books and deploy that more efficiently in the market. It’s going to make the firm more valuable and the shares more valuable.” And so that was the argument for it, is that they had a lot of cash on the books. We can basically just kind of skim this thing down and take that cash and make it more valuable elsewhere. And so that was the argument for him and then several other hedge fund investors who came in later on as well to try to establish, to take some control over that firm. So the argument was potential, basically.

Paul Jarley:                         Okay. So that cash had built up over a number of years?

Kevin Mullally:                 That’s my understanding.

Paul Jarley:                         Okay, because I doubt they even own the real estate they’re in, right? I mean, I think there’s probably little asset there.

Kevin Mullally:                 Yeah, that’s probably true. What I definitely know is that the number that I saw as far as their cash holdings was like $500 million.

Paul Jarley:                         Wow.

Kevin Mullally:                 So a very sizeable amount of cash that they were just basically sitting on, or misusing in many cases.

Paul Jarley:                         Well, because here’s one of the first questions I would have for our two younger colleagues who are here on this podcast. Josh, when’s the last time you set foot in a GameStop? I know you’re a gamer.

Josh Miranda:                   I mean … so the difference in setting foot in a GameStop, maybe a little bit more recently, but actually buying something from a GameStop? It has been quite some time. It’s just most game consoles nowadays, the new ones don’t even have disc drives, so you can just download the games directly from the vendors, from the publishers. So why leave your house to check out what’s out there when you can just download it?

Paul Jarley:                         Garrett. How about you? Have you ever set foot in a GameStop?

Garrett Cummings:         Yeah, it’s been a very long time, I must say. And being a brick and mortar company, you got to sell the best. With everything moving online, GameStop is definitely not the first place I think of when I want to download a new video game.

Paul Jarley:                         Right, they’re in a space where you can download things directly located in shopping malls. Could there be a company in a worse position than GameStop? It’s kind of hard to imagine, really. So it’s not surprising, I think, that some hedge funds started shorting it. Kevin, would you mind explaining shorting for our listeners?

Kevin Mullally:                 Absolutely. Yeah. So this is a pretty common thing that hedge funds do. So when you short a stock, what you are doing is you are borrowing those shares from somebody else in the market. You are taking them and you are selling them, in a sense, and then hoping that the stock will fall so that you can later go back and buy them to replace what you’ve borrowed, and thus you win, you make money if those shares fall. The risk, of course, is that they could also go up, and if they go up, your risk is unlimited. They could go up to infinity, theoretically, and you would lose a whole bunch of money or all of your money.

Paul Jarley:                         Now, just so I understand the scope of the potential loss here for the market, you can’t short more shares than are in circulation though, can you? Is it the number in circulation or is it the number authorized?

Kevin Mullally:                 So one of the impetuses for these, for the sort of Redditors to buying GameStop and begin squeezing these guys is the fact that the short interest was actually above the shares outstanding. In aggregate … not a single trader of course, but in aggregate, I want to say the number was 138%. So they had shorted 138% of all shares outstanding. And so the issue there becomes that clearly everybody can’t buy back the shares they’ve shorted at one time. So if you start to see the stock price increase, some people are going to be hung out to dry because they will not be able to buy those shares back to cover their position. And so it obviously can get a bit more technical when you start differentiating between shares outstanding and then the shares that are actually available to be traded. The term would be float.

Paul Jarley:                         Yeah.

Kevin Mullally:                 But long story short, yes, there was an issue here that the amount of shorting that was going on exceeded the amount of shares that were able to be traded or available to be traded.

Paul Jarley:                         And this got some hedge firms, as I understand it, in trouble. The question I had there is it surprises me that a hedge fund would have a significant percentage of its portfolio in a short position with a particular company. Is that unusual?

Kevin Mullally:                 It’s actually not that unusual. And the reason is if you think about sort of investing, one of the things that we would teach our students right off the bat is that diversification is done to eliminate firm specific risk.

Paul Jarley:                         Right.

Kevin Mullally:                 You hold a diversified portfolio to get rid of that.

Paul Jarley:                         Yep.

Kevin Mullally:                 Now, if you’re holding a diversified portfolio and you’re not really taking any firm specific risks, it’s also difficult to generate abnormal returns. You’re in essence holding the market. And so if you’re a hedge fund and you’ve got five or 10 really great ideas, one way that you can generate abnormal returns is by basically going all in on those five or 10 ideas, especially in the case of short campaigns. And so it’s actually not as abnormal as you would expect. That’s just one of the things these guys do. They’re very, in many cases, high risk vehicles for investment, and that’s what they do. They just take on these very concentrated bets because they believe in them or they believe they can influence the outcomes or other things like that.

Paul Jarley:                         Garrett, do you have any GameStop stock?

Garrett Cummings:         No, it’s kind of interesting though. The stock itself met our criteria perfectly around the $30 mark. And an idea that we’re teaching, I remember this is something called volatility contraction, meaning that we’re not buying when a stock is bouncing around from $20 to $40 in big swings. Looking for when a stock really settles down in a period of five days to a few weeks within the context of an uptrend. And so we teach our members to buy when the stock makes a new high after it’s consolidated for a period of time in a very tight manner. And what this allows us to do, it allows us to take a decent sized position in a stock, like Kevin was mentioning, but because the volatility of the stock has dried up, it allows us to keep our risk for a stop-loss very close behind it. And so a few of my friends followed this trade, actually. And so they had 30 or 40% of their accounts in this trade when it broke out with a portfolio risk of only about 0.8% roughly behind it. And so did it meet their criteria? Yes, but sadly, because of the fundamental idea, I didn’t believe in GameStop at all. I succumb to more of the fundamental side, and I did not take the trade myself.

Paul Jarley:                         Did you have some friends who got rich?

Garrett Cummings:         I’d had a few friends that made about 40 to 60 grand, so not a million dollars stories, but definitely enough to pay off any debts outstanding, especially at our age. And yeah, they did very well on it.

Paul Jarley:                         So why didn’t GameStop use this as an event to raise even more cash? Kevin, maybe you answered that early, but do you have a sense of why they didn’t do that?

Kevin Mullally:                 Yeah, so that’s actually one of the long term implications of this whole incident that I think is the most interesting. So there are a couple of reasons, practically. One, it’s obviously hard to do a seasoned equity issue that quickly. And then the second is more just from an investor’s perspective. So sort of my non-technical description of this whole thing would be that it felt like musical chairs to me. Who’s going to be the last person standing, that’s holding the stock?

Paul Jarley:                         And you don’t want it to be you, right?

Kevin Mullally:                 No. No, absolutely not. And so typically what’s going to happen here is with these equity issues, they’re going to be underwritten by an investment bank, and the first sales are going to go out to institutions and stuff like that. And what institution in its right mind is buying GameStop at 300 bucks a share? What is your expected return in that world if you’ve made 300 bucks for this? And so I suspect that there’s some of that going on as well, is that they just know that this is not really viable. They could do an equity issue, but they’re not getting $300 a share for that.

Paul Jarley:                         Yeah. So who are these Reddit people? Give me some insights here. Are these guys in people’s basements? Josh, you want to weigh in here –

Josh Miranda:                   Yeah, so –

Paul Jarley:                         As a reader of Reddit.

Josh Miranda:                   Yeah, so I mean a lot of my work is kind of in digital media and marketing and communications. So I kind of end up spending a good chunk of my personal and professional life kind of following these trends, these social media communities, if you will. And this subreddit is what it’s called, and this one is called wall street bets. This has been around for several years, as a matter of fact. There’s something like, I think, tens of thousands, or even hundreds of thousands of people who frequent this subreddit to some degree. And the idea being is that they kind of treat Wall Street a little bit more like a casino, and they make a show of some of their buys and some of their losses.

Josh Miranda:                   I mean, they have their own language for the way they describe some of the trades they make and for the losses that they have. And a lot of it kind of surrounds the way a meme can go viral, for example, and this whole GameStop thing has kind of happened the same way, where you have people who are blindly investing in GameStop just because of the herd mentality. And then they’re posting about their, “Hey, I lost $20,000, I lost $30,000,” and they get a whole bunch of upvotes on their post and the community cheers them on. It’s really … it’s kind of fascinating.

Paul Jarley:                         Is this where the term meme stock comes from? Is that where this –

Josh Miranda:                   This is exactly where … yes.

Paul Jarley:                         You’re paying a lot for that fame.

Josh Miranda:                   Yes, yes. I believe this community is the one that kind of coined the term meme stock. And it’s right there along with the likes of AMC, with Blackberry, companies who similarly you may not think would be doing too well.

Paul Jarley:                         Kevin, is this a legitimate area of research in finance?

Kevin Mullally:                 Absolutely. So this is actually kind of well-timed. We had a seminar speaker here a few weeks ago who presented a paper on Robinhood, and basically talked about retail trading and how Robinhood has facilitated in that and what the effects are. And in essence, this has become a really … this is a really extreme example of his paper, but basically what he saying is that retail traders, people on Robinhood, this kind of demographic of trader essentially buy stocks sort of ignorantly. They just buy whatever is going up or going down and then they just lose their lunch. The stocks that they buy go down quite significantly, five or 10% over the next 20 days. And so, yeah, this notion of how retail trading could affect the market and the propensity of people to be trading over Robinhood and things like that is definitely important, especially given the fact that retail trading has become bigger now, with Robinhood and the sort of commission-free trading and that type of thing. It’s definitely getting to be a more economically significant portion of the market.

Josh Miranda:                   Yeah. If I can jump in there, it’s kind of been fascinating to watch it from the lens of this Reddit community, because they quickly turned against Robinhood once they started limiting trading of some of these so-called meme stocks, GameStop, AMC, and they almost took on this sort of David and Goliath sort of mentality. We got to stick it to the man. We’re going to stop using Robin hood. We’re going to leave them negative reviews on the app store. And it’s just been interesting to see the way that herd mentality has really driven so many of these key decisions and financial decisions for a lot of these people.

Paul Jarley:                         Do we have any estimates of how many people we’re talking about here?

Josh Miranda:                   You mean on the community or how many –

Paul Jarley:                         Yeah. Well in the description we’re talking about it. I’m going to be a little blunt here, the number of stupid investors that appear to be out there.

Josh Miranda:                   Sure. Well, so on the front page of this subreddit, it lists 8.6 million degenerates, is what they call themselves, and that’s people who are registered as part of that community. So it’s a lot of people who are at least following this.

Paul Jarley:                         Now Garrett, do you have any sense of that just from –

Garrett Cummings:         Yeah. I’m very proud of the American people for getting back into the marketplace. The number of investors has been on decline since ’08 for a little bit, and it really … I’ve done a lot of studying of the market history. And it really does feel like we’re back in the roaring ’20s a little bit, back when the American people did take a big passion in the stock market. And me being a young, passionate person myself about it, I really hope it’s opened people’s eyes to saying, “Wow, even if I would have just invested $100 in this company, and I did it at the proper time with low risk, I could’ve had a very nice rainy day fund off of that.” And so to me, it’s inspirational. We’re taking down the barrier of the big guy versus the small guy.

Garrett Cummings:         The information out there moves so fast, and the fact that this little Reddit page of Wall Street users was able to find out, “Wow, this stock is 140% short interest, let’s run this sucker through the roof.” The fact that they were able to do their due diligence, even though there are a lot of crazy people out there who just go with the herd mentality, the fact that they came out with that information when no other fund or hedge fund easily could have done the same thing or found it, I think that speaks volumes, that the playing field between institutional and retail investors is narrowing at a very rapid rate.

Paul Jarley:                         Yeah. Is it an American phenomenon though? Or is it a worldwide phenomenon? Does anybody have a sense of that?

Josh Miranda:                   I know I’ve seen specific commenters, just kind of browsing through the threads, so I mean there are people from other countries. I don’t know if they’re the ones actually making the spend here, but I mean there are people who frequent this website who aren’t from the states.

Paul Jarley:                         Where are we now with GameStop and that story? I thought it was down to about $90 a share. Is that the last I saw? Is it down below that?

Kevin Mullally:                 It really depends when you check. It changes every 30 seconds. It’s pretty hypnotic to watch. It’s 61 right now.

Paul Jarley:                         61?

Kevin Mullally:                 Yeah.

Paul Jarley:                         So are we near the end of the story, do you think?

Garrett Cummings:         Personally, I think this is something we’ve seen time and time again, if you’ve paid attention to market history. In the early 1900s, you had the Northern Pacific Railroad had a similar phenomenon. It was $150 a share, short interest was through the roof and a group of traders decided to take advantage of it. And the stock, in one day, went all the way up to a thousand dollars a share before coming all the way back down to $350 a share. You’ve had these boom and busts all throughout history. You had the tulip craze, the South Sea bubble, the .com bubble. So it’s all sorts of things. And usually when a trip … and most recently in the cannabis sector about three years ago, you had [inaudible 00:19:14] rate go from $30 all the way up to $300 a share. So usually when you get these type of moves and they’re round trip, if you did not lock in any profit, I think it’s a very excellent time to go ahead and head for the exit door. The easy money was made on the way up and now it’s just very similar to catching a falling knife.

Paul Jarley:                         So Garrett, I have to admit, it’s kind of refreshing to have a young guy tell an old guy like me to try to remember history here, because it repeats itself regularly.

Garrett Cummings:         Yeah. I get a lot of jokes with my friends, because I’ve read Peter Lynch’s old books, [inaudible 00:19:47], The Old Market Wizard’s books and so on. And a guy named Jesse Livermore said it best: “Human nature is not going to change. So as long as the markets are dictated by human nature, only the names are going to change. You’re eventually going to see a similar bubble situation elsewhere and if you call it a bubble, it can be scary. But if you call it an opportunity, you can catch on the way up if you find a low risk entry and do very well for yourself.”

Paul Jarley:                         So Kevin, how do you think the GameStop story’s going to end? Is somebody going to buy them? Are they going to go out of business? What’s going to go on there?

Kevin Mullally:                 I’m not sure. I mean, I think they clearly have to evolve. I mean that seems obvious, that the brick and mortar or video game sales is not really a sustainable operation. In terms of the trading, I’m not sure. I actually think that this could be a more regular event, and I think data’s coming out … when I was kind of reading about this this morning, a lot of data’s coming out that maybe this wasn’t really the retail versus Wall Street kind of thing that it was pitched to be, that one of the main guys in Reddit was a guy who worked for Mass Mutual and is an actual broker. And there’s questions now about how legal his actions were.

Paul Jarley:                         I was just going to ask that. Was that legal?

Kevin Mullally:                 Yeah, so there’s quite a bit going on here. And a story came out yesterday that said that this Sendvest Investment, which is a hedge fund, they made $700 million off of this. So it’s not even obvious to me that this is a retail versus Wall Street thing. And the funny thing is, is that this is social media, and maybe the medium by which this is taking places a bit different, but this has been kind of a tactic hedge funds have used for a really long time with trying to get stocks to move in the direction that they want. When a hedge fund does a short campaign, they often do media events about it and they do press releases and they accuse the firm of doing things that are not so great and that kind of thing.

Kevin Mullally:                 So this idea of trying to get some collective action on a stock isn’t really new either. And I’ll be curious to see if later we find out that there was a bit more on the hedge fund side and the institution side, sort of poking the bear on this one a bit. So I don’t think that this will be the last time we see something like this. And I’ll be very curious if we get more information that reveals that this was not just Redditors who are mad at the stock market or mad at Wall Street sort of fueling this run.

Paul Jarley:                         How about meme stocks generally? Josh mentioned here, which if I understood Josh, was people sort of bragging about their losses.

Josh Miranda:                   Yes. And I mean, correct me if I’m wrong, I’m not as much the finance guy as much as I am kind of the media guy, but I had personally never heard of mass amounts of people bragging about all the money that they were losing. This community specifically refers to it as loss porn, is what they call it. And it’s people who just kind of celebrate people who’ve lost all this money from making stupid decisions and kind of laugh about it collectively.

Paul Jarley:                         Although we don’t know if they really lost money though. We just know they created a meme.

Josh Miranda:                   They show their portfolio.

Paul Jarley:                         Oh really?

Josh Miranda:                   So from everything that they’ve provided, it’s like, “Here’s my portfolio. I lost a lot of money.”

Garrett Cummings:         Now if I could touch on the psychology behind that, there’s a guy named Ed Sakota, and he’s quoted as saying, “Everyone gets what they want from the market,” and how the market is subconsciously engraved in how they perform in their trading. And so some people are just purely in it for the adrenaline and the thrill and the gambling. And I think that’s where you see a lot of those people on Wall Street Bets. It’s just subconsciously in their mind that they’re going to lose in the marketplace and just don’t do anything to change it.

Paul Jarley:                         Are we going to see government regulation here, Kevin?

Kevin Mullally:                 You know, I think the thing where you could see it as certainly this notion of Robinhood shutting down trading, or only allowing people to close out their positions. I mean, I do think that there’s something to that. It’s an interesting question of what the … of course it always comes down to what your belief about the government’s role is ultimately. There doesn’t appear to be a clear right or wrong answer to me here. Of course on the one side you’ve got these people who are saying, “Hey, we know what we’re doing. We know what we’re getting into and we’re adults and we should be able to do this,” and on the other side the government’s saying, “Well, maybe, maybe not, because some of you are going to lose your lunch on this one as well.”

Kevin Mullally:                 So I’m not sure. I think what’s going to come out of it is probably more transparency about why that decision was made. And I think clearer rules about when these companies and these brokerages and things like that can actually halt trading, because Robinhood is taking the brunt of this, but other brokerages just at things like increased margin requirements and just made the trading more costly. And I think just more transparency on those rules, the specific terms by which or on which trading would halt, I think will be that the most likely outcome in my mind.

Paul Jarley:                         What do you think, Garrett?

Garrett Cummings:         Personally, if anything comes back to say that retail investors should not be able to [inaudible 00:24:53] maneuver, and in the name of secretly protecting the “hedge funds” that they get messed over, I would find that pretty messed up pretty much, because the market’s supposed to be free. You take your bet and if you lose, you take it like a man and you move on to the next trade. That’s how it’s been since the stock market began. You saw it in 1929 when people got burnt, but guess what? We didn’t change regulation just because people had their feelings hurt. Now, I would definitely love to see more details about Robinhood and how this affects the brokerage side. Did they act within their guidelines in the name of “protecting the investor”? And even if that’s the case, I don’t think they should have the right to infringe on a free market.

Garrett Cummings:         If someone wants to buy or sell something and there’s shares available for it or not available, they should really honestly get what’s coming to them, because that’s how they learn. And in 2015, I blew my stock account pretty heavily. I took it from about $20,000 down to $2000. And you know what, that’s part of the game. If you don’t know how to play the game, the game is going to teach you the rules. And the people who did get burned by this, they’re going to learn the rules very fast. And the people who are prosperous from this, I hope they have the rules and don’t go into something else and give away all their gains.

Kevin Mullally:                 There’s another side to that story though, that would be the argument in favor of some sort of regulation, which is just how we want an efficient capital market, because we have to remember that the trading and the sort of return generation is a consequence of the market, not the goal.

Paul Jarley:                         That would be nice, and I agree with that, Kevin.

Kevin Mullally:                 You know what I mean? So if you take a step back and you think about what the purpose is of the market to begin with, the entire purpose is to match savers and spenders.

Paul Jarley:                         Yeah.

Kevin Mullally:                 Right. And so if you get into this situation where you have a market that is clearly not efficient, like on no planet can you possibly justify GameStop at $300 or $400 a share.

Paul Jarley:                         No.

Kevin Mullally:                 Then you get into the concern that Dean Jarley brought up at the beginning of this podcast, which is why didn’t some firms issue stock during this time? And the answer is GameStop clearly is not going to get 300 bucks a share, but AMC did. They did issue stock during this time. And the concern then becomes if that capital is going to a company that’s overvalued like AMC or GameStop, it’s not going to somebody else who has a legitimately viable project that they could pursue. And so the reason why efficient capital markets are important is because we want spenders to be able to finance projects that will grow our economy. And so that’s the other justification for having at least a conversation about regulation, is not just winners and losers in the market, but it’s the economy as a whole and how the market facilitates economic growth.

Paul Jarley:                         Because losing trust in that market would be a really bad thing.

Kevin Mullally:                 Absolutely.

Garrett Cummings:         I would arguably say though, that judgment and value is subjective. When you have a stock that’s close to 140% short interest, and you know that, wow, if we can get a short squeeze or this thing could run and these short positions can not cover in time, you can either see it as wow, the stock’s at $30 a share, or we can see it as the fact that people on Wall Street Bets and other institutions saw that wow, this thing’s 140% shorted, we can run this through the roof and make a killing, just like the old commodity rates back in the early 1900s.

Paul Jarley:                         But I believe that brought regulation, did it not? To commodity markets?

Garrett Cummings:         No [crosstalk 00:28:11] lock limit down inside the commodities markets to this day. You don’t have organized … they limit the amount you can buy that to try and prevent that.

Paul Jarley:                         Yeah, yeah.

Garrett Cummings:         But it still can happen where you get lot limit up and lot limit down, and if you’re on the wrong side of that trade, it can be a nasty little spill.

Paul Jarley:                         So is this going to be a story a year from now? I’m going to ask each of you. Are we still going to be talking about meme stocks and things like maybe GameStop maneuvers going forward? Or is this transitory?

Kevin Mullally:                 I mean, if these Redditors are bragging about losing $20,000 or $30,000, it doesn’t seem like that’s a sustainable future.

Paul Jarley:                         Not in my checkbook.

Kevin Mullally:                 They’re going to run out of money at some point.

Paul Jarley:                         That’s what I thought too, Kevin. How about you, Garrett?

Garrett Cummings:         I don’t think it’s going to be GameStop and AMC, but like I previously said, only the names are going to change. So human emotion and nature loves putting bubbles that we’ve seen throughout history. And so you’re going to just have something else out that goes from a dollar to $50, kind of like NEO went from $4 up to almost $50. You’re always going to find explosive stocks in the market, and that’s exactly what we’re trying to teach our members is okay, how can we identify these opportunities with a small amount of risk and get into them, take our money, and get out before the bubble bursts, essentially?

Paul Jarley:                         Garrett, you got any interest in going into a PhD program in behavioral finance?

Garrett Cummings:         Not really. I’ve just done a lot of studying, and it kind of gets back to what I was saying about Ed Sakota. You get what you want out of the market. So the difference bettwen a losing investor and a winning investor is the losing investors who got their tail handed to them are not going to find what they need to do to win. Myself, I can’t pull it up here on the podcast, but I’ve taken my trading to the level of building a full data Excel sheet that updates live time. And that way I’m having every tool at my ability I need to feel out the market, be able to place the proper bets when I need to. And ultimately it’s a spreadsheet on how to manage my risk while maximizing return.

Paul Jarley:                         Josh, what do you think? Is this the latest social media craze and it’s all going to go away, or where are we here?

Josh Miranda:                   You know, I think that might be a little part of it, but it’s like anything. When you have a lot of people who are putting a lot on the line to really do much of anything, that kind of becomes a news story. And when you have millions of people who are on this subreddit, who are even just … even if they’re just monitoring what’s going on, that in and of itself becomes the story. I know now some of these Redditors are focused on driving up some cryptocurrency. Doge coin is one of them. And so it seems like … again, I’m not the finance guy, but it seems like they’re just going to move on to the next thing, and then onto the next thing. And might they be able to make waves somewhere with some stock or some crypto? Perhaps, but it’s clear that these people are just … they’re still going and this community doesn’t seem to be going anywhere. So if they make another headline somewhere along the way, I wouldn’t be surprised.

Paul Jarley:                         I would just like to take the opportunity to point out that more than two years ago, we decided that Bitcoin is not a thing, at least as a currency. And it continues to exhibit volatility, which makes that impractical.

Josh Miranda:                   That’s fair. That’s fair. A thing or not a thing though, somebody out there is making money on it, I guess.

Paul Jarley:                         It’s my podcast, so I get to go last. Let’s start with the thing I’m most sure about. GameStop is not a thing. There was a reason so many investors were shorting it and I don’t see the company making a major turnaround, at least not the GameStop we know. It may serve a niche market in a nostalgia space or as a secondary seller of older equipment and games to parents buying their kids their first video games. But for the most part, the world has passed GameStop by. I’m not investing in it. As Garrett mentioned, bubbles happen from time to time, and some people will lose their shirts. In a twisted display of macho investing, some of these traders will want to post about it online and claim they’re tough enough to take it. But unless they have unlimited lines of credit, serial meme investors aren’t really going to be a thing for very long.

Paul Jarley:                         Even the E-Trade babies run ended relatively quickly. I suspect meme stocks won’t be a thing for very long either. Chalk it up to a few people getting their 15 minutes of fame. Not a thing, just [inaudible 00:32:41]. Here’s what I think is the real story. Social media gave retail investors a way to coordinate their behavior and maybe influence the market outcome in a way that was impossible in the past. Perhaps a stick it to the man or let’s burn it all down motive played a role with the Reddit group of investors, who see the system is rigged, and were willing to risk losses just to make a point. But ultimately, these retail traders were just participating in the very thing they’re protesting against. Historically, coordinated action by the masses to change market outcomes has been viewed pretty dimly by governments.

Paul Jarley:                         When manufacturing workers organized in the early 20th century to fight back against what they saw as an unjust wage system, the government took pretty strong action. Add the likelihood that some institutional investors may have participated in the Reddit GameStop action, and are certainly thinking about how to weaponize efforts like this for their own benefit in the future. And I suspect government interest in curbing this kind of behavior in the name of protecting efficient markets is sure to arise if we see a few more repeats of the Reddit GameStop story. What do you think? Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the office of outreach and engagement here at the UCF College of Business. And thank you for listening. Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Are Meme Stocks Really a Thing? appeared first on Barry S. Miller College of Business.

After one of the deepest recessions in history, the U.S. economy still has roughly 10 million fewer jobs than before the COVID-19 pandemic began. While some say the economy is improving faster than expected and has seen significant growth in recent months, it could be some time before the U.S. returns to pre-pandemic highs. What will drive the economy back into recovery? And can it happen before 2022? Sean Snaith, Director of UCF’s Institute for Economic Forecasting, explains his timeline and predictions for complete economic recovery.

Paul Jarley:                         So between now and election, what do you think, the economy going to have a recession? Yes? No? Why?

Glenn Hubbard:               On balance, I don’t think we’re at the cusp of a recession.

John Solow:                       I absolutely agree with Glenn’s take on what things are doing now.

Paul Jarley:                         No, I think the short answer is no, there’s not going to be a recession before the 2020 election or in 2020 at all, I think.

Sami Alpanda:                   I agree with almost everything that has been said so far.

Paul Jarley:                         Turns out they were all wrong. This year was all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? Onto our show.

Paul Jarley:                         2020 threw everyone a curve ball. That recession, well, it turned out to be a thing. Is 2021 the return of prosperity? Will the economy go on a run like it did in the 1920s? I sat down with our resident expert, Dr. Sean Snaith, he’s the director of our Institute for Economic Forecasting. Listen in. Well, thanks for joining me today, Sean.

Sean Snaith:                       Pleasure.

Paul Jarley:                         We’ve got a lot to cover. I’m going to ask you to be the ghost of economy past, present, and future, if you don’t mind. And let’s start out with the past. Back in 2019, I hosted a panel of people, including Glenn Hubbard at that time and asked them whether a recession in 2020 was possible and all of them to a person and you as well said, no chance, right?

Paul Jarley:                         The economy was really humming. When I asked them what they were concerned about, frankly, they had trouble coming up with anything and then March of 2020 happened. So how bad did it get in 2020?

Sean Snaith:                       Well, at least I’m in good company in being wrong, I suppose. And I don’t know if I’m the ghost or I’m haunted by my past forecast, but I don’t think, two things, that I don’t think anyone saw coming. One is a pandemic, global pandemic out of China. That’s one thing. This is …

Paul Jarley:                         That’s the exogenous shock.

Sean Snaith:                       That’s the exogenous part. And so this stuff happens. Now, could that in and of itself have triggered a recession? Maybe.

Paul Jarley:                         Maybe.

Sean Snaith:                       Maybe. But it was the endogenous part or the policy response to it that really put us into the historic downturn. And that was the decision in March and April to lock down, quote unquote non-essential sectors of our economy. And that was instantaneous recession. I mean, just add water, just add bad public policy and there you go, that’s a command economy. The government says you don’t make anything. You can still make things. And I mean, it was deep and it was instantaneous and there was no uncertainty about the fact that we were in recession.

Paul Jarley:                         Has it been the most uneven economy? I don’t know that much about the history of this, but I mean, clearly there have been big winners and losers in this. So there are some parts of the economy that did gangbusters, right? Our friends in Lakeland, Publix did really well during this period.

Sean Snaith:                       Well, yeah and I played a large role in that. That was for years been my sort of social activity was making up the excuse to go to Publix to get out of the house. But there were huge winners during this and again, chosen by the government by and large. If you had a nail salon, you were a loser. If you were selling groceries, you were a huge winner. If you were selling goods and services online, you were a huge winner.

Paul Jarley:                         If you required a crowd to be successful, you were a loser. That was sort of the rule, quite frankly. And instead if you were selling something that people could enjoy by themselves in general, you were a winner, I suppose a part of this, but I can’t think of another recession I could summarize that succinctly. Go ahead. Quite frankly, can you, I mean-

Sean Snaith:                       I mean, this is unique. I mean, and again, typically, you may have an exogenous shock that can knock the economy off its tracks and precipitate a recession, but generally there’s some internal weakness already in place.

Paul Jarley:                         Oil in the ’70s, probably the best example, right?

Sean Snaith:                       That was a huge shock a couple of times. And oil was far more important to the economy back then than it is today in terms of how much oil we use to produce GDP. But this was just unprecedented and like I said, I just couldn’t believe what was being done under the guise of public health.

Paul Jarley:                         So how would you describe the economy now< today?

Sean Snaith:                       I think, we’re in the midst of a pretty solid recovery. And again, this is because of the nature of this recession and its uniqueness, typically, there’s a psychology involved with recession and accenting recession and confidence has to build. And, it’s a more gradual process, typically. Everyone knew why the economy was in recession. It wasn’t because the economy was in poor shape. It was because the government shut it down.

Sean Snaith:                       And that’s why the panel of economists in 2019 said everything was fine. And that was true through much of February, the economy was in fantastic shape, maybe the best I’d ever seen, in terms of the labor market, for sure. And so, in order to get out of recession, it was pretty easy to do.

Sean Snaith:                       And the big thing was to let the economy open up again, tell them all, that millennia you can have shoppers there. And all of a sudden we’re selling retail goods again, that weren’t being sold for several months. And people that were furloughed were being, at least part of them were being called back. So, we saw in the third quarter of 2020, a really large, almost 34% increase in GDP growth at an annual rate that was after the second quarter’s contraction, historic of 31%.

Sean Snaith:                       We just got a report this morning in the fourth quarter, the first take on GDP growth. And it came in at 4%. So we’re continuing in a recovery. It hasn’t been officially declared. I think the MBER who weighed in very early on when the recession began, will likely declare I think May, but May or June of 2020 is to when we hit the bottom and began this recovery process. And I think most of the data while it’s not final, supports that.

Paul Jarley:                         Let’s talk about government response for a little bit. So we’re talking about our third fiscal stimulus package, if I got my numbers right, I think. The Biden administration is talking about their third in year judgment. How effective were the first two and how necessary is the third one?

Sean Snaith:                       I think the first one, again, we threw in a matter of weeks, close to 40 million people out of work, I mean, just, the labor market doesn’t function like that under normal circumstances. It lags behind the economy and unemployment rises gradually. It doesn’t spike. And so that money was needed. Unfortunately, I mean, it happened pretty rapidly by DC terms, $2.2 trillion, passed and signed in a matter of weeks, that’s a record as well, but we traded off sort of precision for speed. And so people were getting checks quite frankly, that didn’t need those checks.

Paul Jarley:                         My father who passed away got one.

Sean Snaith:                       And there’s plenty of examples of that, but that’s a different kind of mistake, but I mean, giving it to somebody who’s been working through the entire pandemic and hasn’t seen any loss.

Paul Jarley:                         It was a blunt tool, right? An immediate blunt tool.

Sean Snaith:                       And so that helped, but it wasn’t enough of course, because the economy’s still, really didn’t recover until we opened things up.

Paul Jarley:                         Well, I have to put this in perspective, maybe for people who don’t follow this as much as you and I do, right? In 2019, the economy was $22 trillion give or take, right? So a $2 million or $2 trillion package is little under 10%.

Sean Snaith:                       I mean, it’s fairly big, much larger than our collective response to the great recession after 2008, 2009. And the total response, which was, I think about 1.6 or 1.8 trillion, it took about 16 months to be kind of rolled out and implemented piecemeal, right?

Paul Jarley:                         And spent.

Sean Snaith:                       And spent. So this was very quick, very large and necessary because of what had happened with the shutdowns. Now, had we not shut down everything and let people make their own decisions, and, maybe do public health measures, masks, social distancing, washing your hands, sanitizing, common air, but let the economy continue to function, I think we would have seen maybe a recession, certainly nothing on the magnitude of what we went through.

Paul Jarley:                         The second stimulus is really just rolling out now, how effective do you think it will be?

Sean Snaith:                       Well, the second one, a little bit smaller. It will help. Again, I think the big thing is, is the economy’s reopening. Consumers are spending again, a lot of pent up demand from this recession. We’ve got the vaccines through the approval process and manufactured and being administered. So as we proceed through 2021, that fear factor is going to go down.

Sean Snaith:                       The ability to be in larger crowds should be increasingly possible as we go through 2021. So, that’s really going to be more important than any stimulus. And so this 1.9 trillion that’s being discussed now probably is overkill where we are in the recovery, but if they’re going to do something, let’s take the time and target it to those who need it.

Paul Jarley:                         I mean, so I can see extended unemployment insurance benefits for people who are still out of work, right? Rather than just mailing checks to people.

Sean Snaith:                       Willy nilly. This shut down and this recession has really disproportionately hurt lower income households. I mean, like no other.

Paul Jarley:                         Service industry people, right?

Sean Snaith:                       Service industry people. I mean, obviously here with tourism being such a large sector, tens of thousands of people lost their jobs in tourism and related businesses. Those are the people that have not gone back to work. These are the people that are still unemployed. These are the people that need help, not people that have been lucky enough to work throughout the entire pandemic.

Paul Jarley:                         So did Florida do worse than the US economy as a whole?

Sean Snaith:                       Yeah. Well, the contraction in state GDP, I think-

Paul Jarley:                         On percentage terms.

Sean Snaith:                       … in percentage terms, I think we’re projecting about 6% versus 3.5% nationally. So and again-

Paul Jarley:                         This is bad, basically.

Sean Snaith:                       And it makes sense because the devastation to tourism. I mean, Orlando International Airport, passenger traffic was down 97% year over year in March and April. I mean, that’s effectively shutting it down. And then we had the major theme parks closed and people weren’t going to the beaches and spring break was viewed as evil for different reasons this year than it usually is. It was going to be this huge, super spreading event, right? Super spreaders. So Florida took it really on the chin and tourism is still climbing its way out of that very deep hole, but the rest of the economy, certainly didn’t fare as badly.

Paul Jarley:                         Do you think this next stimulus package will pass? Do you think Congress will do something?

Sean Snaith:                       I’m curious if there’s been pushback because one thing I’ve observed, at least recently in politics is that when it comes to the Democratic Party, there are no deserters. They sort of march and vote in lockstep and maybe somebody will pay a little lip service here and there, but you don’t have people voting against the party very much.

Sean Snaith:                       And so they’ve got, majority’s albeit slimmer than they did in 2008. So it’s interesting to see some pushback and, it may be the nature of the executive office not being as forceful perhaps that there’s a little more pushback. But I think something will come through. 1.9 trillion, almost the same size as the package we did back when the economy was contracting 31% at a time when the economy is six months into recovery, it seems a little late in the game to be spending that kind of money.

Sean Snaith:                       And then, we were talking about before we began recording, yelling at kids that are on my lawn. I’ve been doing the economic equivalent of that for about 10 years about the national debt.

Paul Jarley:                         Well, I’m right there with you, brother. We’re probably the only two people who talk about this regularly.

Sean Snaith:                       And it’s true 27.6 trillion right now. If this goes through, let’s just say a trillion dollars that plus still a reduced tax revenue, I mean, we’re going to be pushing $30 trillion, but certainly by the end of 2022, at this pace, balanced budgets, surpluses, budgets at all, I mean, who needs them? We’ve got continuing resolutions to fund everything, no debate over priorities. No, it’s just spend away. But I’ll say the same thing about the debt. You can’t run up debt like this forever.

Sean Snaith:                       We can’t have a climbing debt to GDP ratio without a day of reckoning at some point. I mean, we’ve been lucky. I don’t know if it’s lucky. I mean, we’ve been enabled.

Paul Jarley:                         Well, interest rates have been so low for so long.

Sean Snaith:                       Well, that’s it. And so there’s been no short-term pain from all this borrowing, but interest rates aren’t going to be low forever. Now, they might be for five more years, they might be for 10 more years. But if we keep adding to that debt and interest rates start to rise, then the burden of that debt’s going to rise right along with it. And we don’t have wiggle room in the federal budget. I mean, most of the federal budget is non-discretionary spending, mandated entitlements and can’t be touched. The discretionary stuff, oh, less defense, more educated. This is nickel dime stuff when you’re looking at a debt approaching $30 trillion.

Paul Jarley:                         So let’s go on to the future. Then when does the economy recover to pre pandemic levels? What’s your best guess on that? Both nationally and in Florida.

Sean Snaith:                       Well, I think in the aggregate, if you’re looking at total payrolls, your total jobs in the economy, I think by the end of 2021, we should be back to where we were in terms of payroll levels. The unemployment rate, probably not down to the same levels by then, but I think into 2022, again, assuming that this recovery progresses and there’s not another policy shock or a viral shock, but with tourism lagging, right, I mean that-

Paul Jarley:                         I think Florida will come out a little later.

Sean Snaith:                       I think we’re into 2022 before tourism sort of gets back. But the data thus far is encouraging on that front. Passenger traffic over the holiday season in Orlando was the largest in the nation, down still 42% year over year. But, again, as we discussed earlier, it was down 97% in March and April. So, that bounce back is really pre vaccine, right? Nobody had the vaccine for the most part, or very few people did by the time the holiday season rolled around, this was just people saying, I see what it is.

Sean Snaith:                       We know what risks are, I’m traveling, and as the vaccine is administered more widely, then I think that tourism accelerates as that takes place. So I think, by the time we get to summer, it may not be exactly where we were in the summer of 2019, but I think we’ll be 75 to 80%.

Paul Jarley:                         So if you’re the Biden administration, what do you do?

Sean Snaith:                       Well, take it easy on executive orders. No, I think they’re going to need to do some, they’ll do some stimulus. I would say again, let’s make it targeted to those that really need it to the individuals and the businesses that were damaged the most by these lockdowns in this COVID-19 recession. And then, take the foot off the gas and let’s see how 2021 plays itself out because I do think the pent up demand is still out there.

Sean Snaith:                       It hasn’t been fully vented and as 2021 rolls on, and people start to go do things in crowds and travel and all these things that have been curtailed, you’re going to see a lot of growth in consumer spending. I mean, if you look at the upper rungs of the household income ladder, that spending is way down still, compared to where we were pre pandemic. And that’s because those households are the ones most likely to go spend two weeks in Aruba or go out.

Paul Jarley:                         Most discretionary experience-based spending, right?

Sean Snaith:                       Exactly.

Paul Jarley:                         We talked about it.

Sean Snaith:                       And so that has not been uncorked yet, so that’s still coming. I think housing is a pretty solid driver of the economy, not just here in Florida, but nationally, and I think will continue to be. It was unusual, although it’s not late cycle anymore, but pre COVID 19, there was a booming or building boom in housing taking place. And that was at the tail end of that expansion.

Sean Snaith:                       Usually construction booms at the beginning of an expansion. So we had this late expansion wind from construction and that breeze is still blowing. And I think, continues through 2021 and probably a couple of years beyond.

Paul Jarley:                         Do you think there’ll be a tax increase?

Sean Snaith:                       Well, the tax cut and jobs act, I think some elements of that are going to go. It’s always easy to just say, well, we’re going to tax corporations more and just, pretend that there’s some extra-terrestrials-

Paul Jarley:                         That pay that tax.

Sean Snaith:                       Yeah. That pay that tax, that it isn’t really us paying it, but it’s confusing enough to most people that they think that they’re not paying it. So, I think you’ll see that, always fashionable to tax the rich. So, those high-

Paul Jarley:                         Find is over $400000. Is that the current proposal, I think.

Sean Snaith:                       Well, it depends on where you live and if you have kids. So I think taxes are going up and so that will have a dampening impact on the economy going forward. I think the economy, because of the COVID thing’s got some momentum here as we recover from that.

Paul Jarley:                         So it may not be a bad time in the short term, [crosstalk 00:21:49], right?

Sean Snaith:                       Yeah. But what I would expect to see, and I don’t know if it will be in this administration, but at some point there are going to be new taxes implemented. And I think, again, back to this 20, 28, 27 and a half trillion dollar debt and growing, it’s got to be paid for somehow. There’s growth taxes, I think, your 401k might suddenly be subject to a charge or a withdrawal processing privilege fee, financial transaction taxes, we’ll get those GameStop Redditors, we’ll make them pay a tax every time they try to buy. And I think in the medium run, that’s likely to be the case.

Paul Jarley:                         Is it politically or economically viable though to create a new set of taxes that would actually put the federal budget in balance? You go back to pre ’20 spending, 2020 spending.

Sean Snaith:                       Well, again-

Paul Jarley:                         Because there’s two ways out of this, right? We either cut spending and get back into a balanced budget or a surplus situation. Or not unlike UCF, we can try to grow our way out of this.

Sean Snaith:                       Well, there are limits to enrollment and the best of growth that we could expect would be insufficient to deal with the debt that we have. And we’re not-

Paul Jarley:                         5%. I mean, 5% would be historical.

Sean Snaith:                       It would be historic. It would need to sustain that. And even then would still have to make some decisions, but what’s not been addressed are entitlement programs. Those taxes have been tweaked a little bit, the income limits have been pushed up. I think that’ll be part of that puzzle.

Paul Jarley:                         Retirement ages might go up as well. I could see that happening.

Sean Snaith:                       And again, as I get closer to eligibility, my opinion changes a little bit. Dammit, I want my social security, but it was originally not meant to be a 35 year defined benefit pension from the government. This was to keep the elderly, many of whom fought in the great wars and supported those efforts and, lived through the depression and, work to make our country great. And to make sure they didn’t end their lives in poverty.

Sean Snaith:                       And so the eligibility age at the time it was, the program was created, was older than the life expectancy. And so that hasn’t changed much in terms of eligibility age, but life expectancy has gone up significantly. And so that’s why people are at the social security trough for much longer than historically was the case.

Sean Snaith:                       Anytime you try and touch social security, you’re pushing grandma off the cliff in a wheelchair, the AARB, Jack boots come out after. I think there’s a realization, finally dawning here that we’re in trouble with this program as it is, the status quo is non-sustainable.

Paul Jarley:                         So last question, is the roaring ’20s going to be a thing?

Sean Snaith:                       It was for two months. The first two months was the best of times.

Paul Jarley:                         Can we have another decade long run?

Sean Snaith:                       I’m not sure. I think that there’s significant damage from this recession. I said, well, the aggregate, we might get back to the numbers in a year, year and a half, there’s still going to be losses that don’t get-

Paul Jarley:                         Persist.

Sean Snaith:                       And particularly small businesses.

Paul Jarley:                         No doubt.

Sean Snaith:                       Many did not make it through the lockdown itself, many limped on for awhile, but will not survive 2021. And so those folks, those resources have to be sort of redeployed. I’m a bit concerned about policy. I mean, it seems like we’re slipping back towards, sort of policies that do have a downward impact on economic growth.

Sean Snaith:                       A lot of the Obama, Biden type ideas are sort of being rolled out again. And I think a lot of that is what kept the economy from really bouncing back more strongly after the great recession. And so, again, I don’t know, I have to wait and see what actually happens and what gets passed, but what’s being discussed seems awful familiar.

Paul Jarley:                         Thanks, Sean.

Sean Snaith:                       Thank you for having me.

Paul Jarley:                         It’s my podcast. So I get to go last. The Spanish flu gave a way to the roaring ’20s. Will history repeat itself? Pent up demand is most certainly a thing. People have been cooped up in their houses for a long time. And when this pandemic ends, they’re going to want to party and travel. Some of this will result in a shift in consumer spending away from goods and towards entertainment and experiences, but on balance, I think a pretty big bump is coming.

Paul Jarley:                         But for all this to happen, the pandemic has to end. We can talk stimulus packages all we want, and some money is certainly needed, but the best stimulus package in my mind is the one that puts as many needles of the vaccine into people’s arms as quickly as humanly possible. It is ultimately consumers, not the government that will drive this rebound and to do that, people are going to have to feel safe going out again.

Paul Jarley:                         Will this lead to a decade long expansion? I doubt it. We’ve got a big bill to pay. Tax increases are probably in our future, and this will slow economic growth some, but the roaring ’20s were mainly fueled by technological innovation as the electrification of America and the rise of mass production opened up new markets and fueled job and income growth.

Paul Jarley:                         Maybe we’ll see a number of innovations hit the market in the post pandemic world, but I doubt they will replicate what happened in the 1920s. That said, predicting the future is a risky business. And right now, just returning to business as usual seems like reason enough to celebrate. What do you think?

Paul Jarley:                         Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach and Engagement here at the UCF College of Business. And thank you for listening, until next time charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Will the Economy Fully Recover in 2021? appeared first on Barry S. Miller College of Business.

It’s hard to imagine a virtual Tupperware party. Sales presentations are trickier with the move to increased online communication. Gone (for now) are the days of making small talk with prospective clients in the hallway and capturing their undivided attention face-to-face. Now that life has gone virtual, is it really possible for sales professionals to channel their charisma and build rapport through video calls? Do customers respond the same way to virtual selling tactics? Or should salespeople be expecting lower commissions until they can meet in person?

Paul Jarley:                         Remember the door-to-door Salesman?

Salesman:                           Good morning, madam.

Homeowner:                     Good morning. I’m afraid I don’t want them.

Salesman:                           You’ve been selected for a special introductory offer, madam.

Announcer:                        Using one of the many tricks to interest you, he’ll keep talking, exaggerating.

Paul Jarley:                         My sense is he got largely replaced by the robocall.

Robo Caller:                       Hi, I’m calling from vehicle servicing to reach out regarding the factory warranty on your vehicle. Our records indicate it’s past the coverage expiration [crosstalk 00:00:24] the vehicle you want to sell is actually still eligible for a warranty.

Paul Jarley:                         But if there isn’t enough to be annoyed about in 2020, now we have this.

Zoom Caller:                      Can anyone hear me?

Zoom Caller:                      We can hear you.

Zoom Caller:                      Hello.

Zoom Caller:                      Yeah. We can hear you. We can all hear you.

Zoom Caller:                      I’m sorry. Just before we begin, can I just go to the bathroom quickly?

Zoom Caller:                      I’m just going to go ahead.

Paul Jarley:                         Does anybody really need Zoom call salespeople? Really?

Paul Jarley:                         This show is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? Onto our show.

Paul Jarley:                         Necessity really is the mother of invention. Case in point, how do you sell people stuff if lockdown orders and social distancing norms mean you can’t meet with potential customers in person? Answer? Virtual selling. Google it and you’ll see how many YouTube videos you can find featuring people who are now positioning themselves as virtual selling experts. YouTube is the happy home of many a modern-day snake oil salesman. So I wanted to talk to a few sales experts and get their take on virtual selling and whether I need to incorporate this into the business school curriculum. Listen in.

Paul Jarley:                         So what the heck is virtual selling and how does it differ from other forms of selling?

Kathleen Lima:                  Virtual selling in general is a way to communicate using digital platforms and technology in order to still be able to do business.

Paul Jarley:                         Kathleen Lima is a sales manager at Gartner, and more importantly, a graduate of our professional selling program.

Kathleen Lima:                  It’s something that at Gartner we do a lot in our mid-sized channel. We do almost full virtual selling. We’ve always been doing that. In the field we’ve been much more face-to-face and local, but in general, to me, virtual selling is very much just using digital platforms in order to still build relationships with clients and to get business done.

Paul Jarley:                         Keith, are we on TikTok? Zoom? What are we on?

Keith Lubner:                     So interesting. No.

Paul Jarley:                         Keith Lubner is chief business strategist at Sales Gravy.

Keith Lubner:                     You think about it, virtual selling is… We’ve been doing selling this way since the dawn of time, since smoke signals basically when you really think back on it. We’ve been selling virtually and… It’s not like all these virtual platforms are anything new. We’ve been using it for years. It just so happened that now we’ve been forced into this in a really profound way. So how it’s vastly different though from face-to-face selling is it’s basically selling without all your senses. Think about it. When you’re face-to-face, you have that you can read people. You can pick up on their mannerisms. Everything is normal in that environment, from things like the audio or the lighting or how they look. And when you move into a virtual world, you have to be really intentional now, whereas before you didn’t have to be intentional about all of these senses. You have to be intentional about how your audio sounds.

Keith Lubner:                     And the reason you want to do that is on the other end you don’t want to create a lot of… And we talk about this in the book that Jeb Blount, our founder, wrote. We talk about how, if we don’t normalize the environment for people going from in-person to virtual, that we’re creating all of these processes in the brain that will create a lot of what we call cognitive load. And when that happens, you slow down and you don’t have great interactions. So you have to be really intentional about all these things to make the environment seem normal so that you minimize those processes that are kicking off in somebody else’s brain. That’s where it’s vastly different because in person you take it for granted. You just do it. It’s natural for every single human to have a face-to-face meeting. You’re not thinking about the lighting. You’re not thinking about anything like that. Now you have to.

Paul Jarley:                         Neither of you may be old enough to know this, but there’s a really famous United commercial, probably from the… I’m going to guess the eighties. Where the guy comes in to the office and he says, “Our oldest client fired me today.” He said, “We didn’t know who he was anymore. We meet with our customers on the phone. We send faxes.” And he hands out plane tickets to everybody in the room, telling them they’re going to go meet their clients face-to-face. I think that commercial won hundreds of awards.

Keith Lubner:                     I remember that commercial. [crosstalk 00:05:18].

Paul Jarley:                         Yeah. Bill Steiger’s old enough to know who those people are.

Keith Lubner:                     I remember that one.

Paul Jarley:                         So is that the old school version of virtual selling? On the phone? Fax?

Kathleen Lima:                  I think so. I know when I even started doing virtual selling, we didn’t really use video whatsoever. And that was the norm because that was the culture and the norm. We just did conference calls. Now, it is much more important than ever to do video. We have gone almost full video in any meeting we have now with client or internal, we are almost full video, which is different.

Kathleen Lima:                  And two, it’s even more important now to build that rapport. Because a lot of times, when you… At least when we were virtual selling before, we had a 30 minute time slot, we had specific things we had to get done. You check all the boxes, you go through. And now this is the normal. So you have to be able to build those relationships and know who your customers are to your point and not forget who they are. But you have to be able to do it without being able to go to lunch with them or sit across the desk from them and walk into their office and talk about your families as you’re walking through the hallways. You just don’t have that anymore. So rapport is even more important.

Paul Jarley:                         Is this used largely in B2B sales situations or are there B2C applications as well?

Keith Lubner:                     From what we’re seeing it’s largely B2B. And people are really struggling with how do they… And I hear this a lot from folks that are just superstars in sales. And the superstars in sales… What Kathleen was getting at was so true. They had this innate ability just to build rapport. They were brilliant at it in person. And all of a sudden they’re like a fish out of water, basically, when they come into the virtual world. They’re struggling mightily, mightily, mightily with that. So when we think about selling in this new paradigm, it goes back to the things I was talking about earlier, as far as normalizing the environment. Because building rapport and normalizing the environment is so, so darn important now.

Keith Lubner:                     And it’s really important for those people that just… They innately knew how to do it before and now they’re in this world where they have no idea how to do it and they just struggle. So we’re the same way. We teach a lot of classes on this and we’re telling people at all times, “Always be video ready.” We call it BVR. “Be video ready.” Yourself. Because you want to try to make that connection with someone. And the only way you truly can read someone or make that connection is if they’re also on video, because then you can pick up on all the non-verbal communication that they’re giving you, which is normally what they would do in person. And that’s where people are struggling. They’re struggling with, how do they do that? How do they interact that way? How do they handle all that?

Kathleen Lima:                  Yeah. And in terms of B2B versus B2C, at least in our research, it says that by 2025, 80% of B2B sales interactions between suppliers and buyers will occur in digital channels. I think it’s possible to do B2C. I think it might be a little bit different than B2B.

Paul Jarley:                         Yeah. Here’s why I’m asking, Kathleen. I assume… Maybe wrongly, so help me out here, that in most of those B2B sales situations, you already have some relationship with that customer. Because here’s the thing. From a B2C standpoint, I’m not accepting a Zoom call as a consumer. I’m on Zoom enough. You’re just not getting me there. So it’s hard for me to understand virtual cold calls. I just don’t really see that as something that’s likely to be a thing. Is it?

Kathleen Lima:                  It’s interesting because I just had this happen to me on the other side, where I had someone prospect into me from B2C perspective.

Paul Jarley:                         Really?

Kathleen Lima:                  So what people are doing that seems to work is… You’re right. Am I going to, if I was in a B2C organization, just set up a Zoom meeting and call someone and hope that they’ll talk to me in video? They’d tell me to get lost. But people are actually utilizing from a B2C perspective LinkedIn a lot more and other platforms to build those relationships and make them more warm leads and then ask, “Hey, are you open to having a meeting about that?” And then if you’re open to meeting as a consumer, that’s when they can send a Zoom meeting. And at least for me, I might at least pick up and listen, because now it’s something we’ve already been talking. We’ve been messaging on LinkedIn. We’ve been having conversations. And it feels much more real versus if someone just sent me a Zoom cold call of some sort. I absolutely would not pick up.

Paul Jarley:                         Keith, do you have thoughts on that?

Keith Lubner:                     A hundred percent. You’re absolutely right. Here at our company, we’re teaching a lot of sales professionals day in and day out. And what we’re seeing is absolutely people are utilizing… They’re utilizing LinkedIn. They’re utilizing other platforms as well. We’re seeing more and more of these social platforms coming into the business space actually. Here’s what they’re also doing. They’re taking all of these different modes of communication… And really all these modes of communication fall into really two buckets. Synchronous and asynchronous modes. Bi-directional and one way. And what they’re doing is they’re blending them into their processes. So they’re blending a phone call. They’re blending texts. They’re blending video messaging, which is really starting to come out really strong these days, as far as making connections. They’re actually utilizing video messaging through the social platforms and through other apps to make those connections that they normally couldn’t make.

Keith Lubner:                     And it’s not as dramatic as it would be to just send somebody a virtual link to a Zoom meeting or any other platform and say, “Come on, let’s get on that.” But it’s a way of somebody to see, even from a prospecting perspective, to see the person, to see the enthusiasm, to read their mannerisms, whatever the case may be, in a really non-threatening way. And that is opening the door to actually getting them onto a virtual meeting. So this blending all of these approaches is really the key as people move forward. It’s really the key of true productivity. It’s how they use something like video and they insert it into where would normally maybe do an in-person. And how do they use the phone effectively and how they tie texting into all this. Now, they’ve been doing that in a way, but now what we’re doing is we’re bringing virtual technologies really to the forefront in this blending concept.

Paul Jarley:                         Yeah. This is going to get me in trouble, but I’ve seen my wife do some of this. On Facebook Live where they’ll have opened demonstration sessions and sell products that way. It’s intriguing to see how that’s worked. But that’s a form of virtual selling as well.

Keith Lubner:                     Yeah.

Paul Jarley:                         If I think about it that way. I’m not sure I know what Tupperware’s doing these days, but I wouldn’t be surprised if they had a similar approach to that going forward. So talk a little bit about what the main barriers are here to overcome. You touched on it a little bit, particularly with respect to senses, but what other barriers are there?

Keith Lubner:                     Sure. Well, psychologically people feel threatened when you move them out of their safety zone. And their safety zone has always been in person. Think about those superstar sales people I was talking about earlier. Their safety zone is when they’re in person with somebody and they’re going face-to-face. And that’s most people. And as soon as you start to bring somebody out of their safety zone, as soon as you start to touch on that safety bias that their brains inherently create for themselves, they immediately feel uncomfortable. They feel vulnerable.

Keith Lubner:                     And that’s exactly what’s happening when you bring somebody into a virtual world. Because quite frankly, the camera can be intimidating. And people feel threatened. They feel it’s different. They’re looking for something that’s wrong in the environment, not something that’s right in the environment. So when they move into a virtual world, they’re not saying, “Hey, this is the best thing! I can’t wait to do that!” What they’re thinking is, “Oh, man, this is going to make me uncomfortable. And I don’t want to feel uncomfortable.”

Keith Lubner:                     So the barrier is psychological right there. And the barrier is getting them to understand that it’s okay. Now, when they come in, the other barrier is the environment that they’re in has to be set up so it mimics or duplicates what an in-person world would look like. And that goes back to little things like lighting, little things like audio, little things like where the camera angle is at. Things like that now matter because of the moving somebody out of their safety zone into this world. And when you make them feel comfortable, then those barriers go down. When they don’t feel comfortable, fight or flight kicks in. They’re either going to fight it day in and day out, or they’re going to run for the hills.

Paul Jarley:                         I would guess that it would just be easier to say no to you on Zoom or virtually than it would be in person. Is that true?

Keith Lubner:                     It is.

Paul Jarley:                         Yeah?

Keith Lubner:                     It is. Look in the bottom right hand corner of every Zoom meeting. It’s, “Leave meeting,” or, “Turn video off.” Look how easy it is for somebody to disengage. So one of the challenges we’re finding and we’re teaching people on this is how do you keep the attention levels high on these meetings? How do you collaborate? How do you keep them engaged in these meetings when clearly they have these very immediate options? And clearly sometimes you can see that they’re multitasking.

Kathleen Lima:                  Video is key for all of this, because to your point, yes, is it easier to say no? Virtually, yes. However, if you’re on video and you’re still looking at someone face-to-face, it’s still pretty difficult. And the size of the room makes a difference. If you have 20 people and you’re doing a demonstration, that’s very different than if you are selling to a C-level executive and maybe one or two other people in that virtual room. It’s just more interactive. So you have to plan ahead of it might sound great if someone says, “I want to bring my entire team,” but it might not be the best move for you if it becomes a situation where there’s too large of a number and because of that it’s not interactive and people shut off their video and start doing other things.

Kathleen Lima:                  It’s funny. Burnout is absolutely a thing. And that’s something for my team specifically we consistently talk about and try to avoid as much as possible. The default for meetings, if you’re going to be doing them virtually, are 30 minute meetings. It’s just the default. It’s just what we’re used to. That’s not necessarily the most productive use of time because between rapport, between everything, just getting to know these clients, you don’t really get to the meat of the meeting by the time it’s over. So it could seem like it’s less efficient. So we always try to make our meetings an hour. We still try to space out our meetings. We don’t want to go back-to-back. To be able to get up, walk around, just like you’d be getting in your car, except for now it’s 30 seconds to a minute. So it could be exhausting. You have to be very, very clear on your schedule so you don’t get burned out.

Paul Jarley:                         Are some people better at this than others? Is this a young people’s game?

Kathleen Lima:                  In general, it is people who have grown up in this environment. So UCF in general, we’ve all had some sort of digital class. We’re used to that. And when we go to, like I said, where you [crosstalk 00:17:10]

Paul Jarley:                         That doesn’t mean the faculty member’s good at it though.

Kathleen Lima:                  I remember I was in a class with 1200 students and you know what? It worked out fine.

Paul Jarley:                         You learn a little bit what not to do too, right? Sometimes.

Kathleen Lima:                  You learn what to do, what not to do and all that. So we start in a channel where it’s mostly digital regardless. So a lot of the people on my team who I have hired are people from that channel. I have promoted them into the large enterprise organization and they are fantastic at this. This is no different for them at all. Versus others who come from outside who have a lot of field sales experience and a lot of in-person experience, they’re incredible at sales, but it was a much, much bigger shift for them. Versus here, it’s just like we’re back in Fort Myers. We’re just doing everything on video. So it’s just more of creating that culture of what you’re used to and making it the norm. Eventually we’re all going to have to be there, but for people who already have that training, it’s very easy to move into this fully virtual world.

Paul Jarley:                         Keith, is that true? Can you not teach old dogs new tricks?

Keith Lubner:                     I would agree, absolutely. Here’s the thing. If there’s a good side, if there’s a silver lining to the pandemic, the silver lining is that it’s forcing people to accelerate their acceptance of technology and to adapt to all of it and to flex to it. So it’s forcing generations that maybe would not accept this, would maybe say, “Uh, I’m just going to do my things my way all the time.” It’s forcing those generations to catch up if you will.

Paul Jarley:                         I don’t know, Keith, Josh is trying to get me to go on TikTok and do some things and I’m really resisting this idea.

Keith Lubner:                     It’s funny that you say that. A recent class that I taught, one of the participants asked me about these platforms and they said, “Is TikTok going to be… Is that a platform we should look at?” And our first tendency is to laugh about that. When you really think about it, it’s something that we just have to have our eyes on because it could maybe someday do what LinkedIn did. LinkedIn years ago was just a repository for your credentials like a CV. And now it’s a platform for communicating and utilizing it in the sales process.

Paul Jarley:                         Yeah. But I’m a 61 year old guy and I realized that being on Instagram would just be creepy. I’m not sure TikTok would be any better.

Keith Lubner:                     Well, I’m not too far behind you, I’ll tell you that. But my point is it accelerates… In some realms we’re never going to do those things. But in others, it’s accelerating… Even in our generation, it’s accelerating it. And I look across… my kids are in they’re in their twenties and they pick up this technology a lot easier. Now what’s interesting is this is where cross generations can train each other. Whereas we can train them on utilizing all these different modes of communication, the phone and all of that, where they have never been exposed to that because they’re primarily growing up in a world where texting is the mode of communication. So we can play off one another really well in these environments.

Paul Jarley:                         I would agree that I think that the acceptance of virtual forms of communication are way up, that the pandemic has actually forced that. That will continue in some form. But I do wonder whether virtual selling will have staying power past the pandemic or not. What do you think? Has it just become part of the mix?

Keith Lubner:                     Yes.

Paul Jarley:                         Because here’s the thing. If you’re willing to come visit me, you’re showing more effort, I’m going to pay more attention to you.

Keith Lubner:                     It’s going to be part of the mix. The pendulum has swung all the way across to now just completely virtual and it will swing back. And when it swings back, it’s not going to swing all the way back where we’re not doing virtual anymore. It’s going to swing back to some point in the middle where there’s a happy blend of efficiency. And the happy blend of efficiency will be… You’ll include virtual techniques in there and you’ll use it, like I said before, very tactically and strategically within your sales process. That’s where it’s going to be utilized. It’s not going to be all in one way, all in the other. And I crave, just like everybody else, I crave some in-person environments for training and all of that. We all do. But we know we’re going to be blending both as we move forward for a long, long period of time.

Paul Jarley:                         Kathleen?

Kathleen Lima:                  I agree. And I do think too, it will depend on the industry and what you’re selling. If it’s something that’s very tangible, it might make sense to go in person to actually show the product itself, to be able to show all of the different features and functionalities. If it’s not as tangible, virtual selling might become more so. Yes, we’re still going to do in-person absolutely and I would be remiss if I said we’re not. But if you can show features and functionalities and it’s just not as tangible, it might change the sales process itself of when we are qualifying, “Do we do more virtual and then perhaps in the beginning do more face-to-face? Or at the end do more face-to-face?” It’ll change the process itself.

Paul Jarley:                         Or more virtual workshops around the product.

Kathleen Lima:                  Exactly. Something where if you’re still doing… Let’s say the education process. You can do that virtually, because now we’ve seen, it’s been proven, that it can work. Because we’re still selling, the world is still selling, and it’s shown that it’s worked. So we can incorporate that into our sales process where before that would absolutely have not been a thing. We would have gone into the office and done all of those lunch and learns in person.

Paul Jarley:                         Yeah. Let me take you in just a little bit of a different direction since I have you here. And I’m a Dean with a bunch of students… Well, I graduate 2000 a year. And these aren’t the easiest times for them. I’m wondering if you could talk a little bit about what students, particularly who are trying to build relationships and secure internships and jobs going forward, what can they learn from virtual selling that they might be able to apply to help them build relationships and get to where they want to go?

Keith Lubner:                     I’m right there with you. I have college freshman. So I ponder this often. And I think what they can learn from all of this is that you need to meet people how they want to be met. And if you meet people, if they need to be met virtually, you meet them virtually. If you need to meet people in person, in person. If they want to be met with through texting or email or whatever mode of communication, your ability to adapt and be flexible to those people is really critical.

Keith Lubner:                     Especially my daughter, she’s learning that she has to understand that flexibility. Because some people will want that in person and other people won’t. And I’m hoping I’m answering your question appropriately. Because I’m thinking with regard to my daughter and how she’s interacting. She’s starting to make friends and she’s starting to go through that whole process there. It’s really difficult for them right now because they’re trying to balance these modes of communication and they’re a little confused as to how to do it and how to build relationships. But I think if they can get it down and they can meet people, like I said, where they want to be met, that will help them in whatever career they go into, whether it’s selling or whatever.

Paul Jarley:                         Kathleen?

Kathleen Lima:                  Yeah. I completely agree. In general, students are… I would assume, tell me if I’m wrong. They are adapting to this new world. [crosstalk 00:25:10]

Paul Jarley:                         Well, some of them are, some of them aren’t, to be quite honest about it.

Kathleen Lima:                  Yeah, yeah. It’s definitely new. I would think from both a personal and a business perspective, there’s been a lot of different changes. And I do think it will become a bit of the new normal. And I feel like the longer this goes on, the more students will begin to adapt. And to your question around how can we help them and is this something we should do, I do think having some sort of training right from the get-go would make this more normal for them. And if it’s more normal for them, then they adapt quicker. And if they adapt quicker, it helps overall. It helps from their own mental health. It helps from their skillset. It helps from just development. If we can adapt and assume that this is going to be somewhat of the new norm and then from there adjust accordingly, especially from an education and training perspective.

Paul Jarley:                         That’s a great segue to my final question.

Kathleen Lima:                  I planned it.

Paul Jarley:                         Thank you. Is virtual selling going to be a thing five years from now? Yes or no, and what will it look like? Kathleen?

Kathleen Lima:                  I’d say yes. 100% yes. The world in general is moving more digital with or without this pandemic. Obviously this has really made this more escalated more quickly. But yes, I do think it is here to stay. I would absolutely advise to incorporate this somehow into lessons, into the business school, whatever needs to happen to help students adapt quicker so they are much more successful when they go into the business world.

Paul Jarley:                         Keith?

Keith Lubner:                     100%. Absolutely yes. Five years, ten years, it’s going to be part of just our DNA of how we do things. I think we’re going to see a shift, even a faster shift, into direct messaging through different apps as well and how we’re communicating that way. All of that’s moving and those that can adapt to that, embrace it if you will, will thrive.

Keith Lubner:                     When you think about just some basic stuff around training people, for instance, companies are now looking at the bottom line savings that they can take on with training people virtually. That’s going to continue to increase as time goes on as well. They’re not going to shift all the way back to bringing all of their people in from all over the country for training events because it’s a very high expense. What they’re going to do is they’re going to look at how can they leverage virtual and train people virtually and minimize the expenses, but get the outcomes that they’re looking to get from a training? And that’s just one example. I think over five years, you’re going to see more and more examples of where people are going to weave this into their processes and make it a normal process.

Paul Jarley:                         It’s my podcast. So I get to go last. This discussion left me wanting more. So I consulted my resident expert, Dr. Bill Steiger. Bill is the director of our professional selling program. He wrote back this. “Virtual communication is the thing. Virtual selling is a subset of virtual communication and likely the most significant change in the sales process since cell phones.”

Paul Jarley:                         Bill’s point is if a new way of communication develops, you can rest assured somebody is going to try to sell you something using that new platform. In that sense, virtual selling is a thing because virtual communication has become a thing. For virtual selling to become a big thing, customers will have to embrace it. As Keith said,

Keith Lubner:                     “You need to meet people how they want to be met.”

Paul Jarley:                         And I’m not sure why customers would prefer this method. Is it a more convenient form of buying for the customer? It certainly saves the seller travel costs, but I’m not sure it’s more convenient for the consumer. Does it represent an easy way to get information they need without having to suffer the whole sales pitch? This got touched on a bit when Kathleen noted,

Kathleen Lima:                  You’re now on the computer. We can go through and start looking up answers right on the spot and we can pivot a lot quicker.

Paul Jarley:                         If virtual selling is going to be a thing, it’s going to need to be a customer thing, not a sales thing. But my guess is that virtual selling is going to be much more limited in scope once things open up again. It might form a chapter in a book on sales, but I doubt it will be a whole new curriculum. What do you think?

Paul Jarley:                         Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach and Engagement here at the UCF College of Business. And thank you for listening. Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Is Virtual Selling Really a Thing? appeared first on Barry S. Miller College of Business.

As employees continue to work from home, leases are running out and corporate office space is in jeopardy. Managers around the world have to decide if it’s more efficient to keep their offices open, downsize, or go entirely remote. Seven months into this pandemic, the question remains… is working from home really going to stick? How is the commercial real estate industry handling the move to remote work spaces? Can professionals truly replicate the “sense of space” that comes with collaborating in person… from home? And five years from now, what will the typical workday look like?

Spooky Voice:                   Submitted for your approval: a man gets up every day… he gets dressed, he drives to work, he interacts with 10,000 students.

Paul Jarley:                         Well, hello there. Welcome to The College of Business.

Spooky Voice:                   The year is 2020 and Dean Paul Jarley has entered …

Paul Jarley:                         Hello? Is anybody here?

Spooky Voice:                   The Twilight Zone.

Paul Jarley:                         Tina? Tiff? Josh? Anybody here?

Paul Jarley:                         This show is all about separating hype from fundamental change. I’m Paul Jarley, dean of The College of Business, here at UCF. I’ve got lots of questions.

Paul Jarley:                         To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? On to our show.

Paul Jarley:                         Seven months into this pandemic and the UCF College of Business is largely empty. Office occupancy can’t be greater than 10%. Many of my employees don’t want to return to work. They tell me they can get their work done from home, just fine.

Paul Jarley:                         It makes me wonder what I should do with all this space, but I have to admit, I’m not really sure what I’d turn it into. Maybe an apartment for me, so I never have to leave work? Perhaps dorms for students? Maybe, I could lease it all out to Amazon as warehousing space? I’m not really sure.

Paul Jarley:                         To help me think about the future of office space, I’ve assembled a panel of experts. Listen in.

Paul Jarley:                         If anybody can remember what life was like before March, could you talk a little bit about what the trends in class A office space has been, over the last few years? What have been the major trends that you are all seeing?

Paul Jarley:                         Bill, do you want to kick us off?

Bill Moss:                            So, everything was fine while I was still in the industry at CBRE. Since I left, it’s all gone haywire.

Paul Jarley:                         Bill Moss was the managing partner of CBRE. It’s the largest commercial real estate brokerage company here in central Florida.

Paul Jarley:                         These days, he’s the director of the Dr. P. Phillips Institute for Research and Education in Real Estate at UCF.

Bill Moss:                            Maybe Steve could kick things off with really, what he sees from the front lines, maybe over the last couple of years, but certainly since March as well.

Paul Jarley:                         Yeah Steve, chime in.

Steve Garrity:                    Yeah, I’d love to. Thank you, Bill.

Paul Jarley:                         Steve Garrity is vice president of Highwoods Properties, a real estate investment trust. He’s in charge of acquisitions and development for the company’s Orlando division.

Steve Garrity:                    Certainly on your watch and before COVID, the economy was humming. We were all enjoying vacancies going down. Our occupancy was certainly going up and quality of our customers was improving. Reno rates were increasing.

Steve Garrity:                    Before COVID, class A office space was under 10%. Before COVID, we were very confident and excited about the future, before March 17th.

Nick Poole:                         Yeah, I’m happy to add to that.

Paul Jarley:                         Nick Poole is managing director at JLL, the second largest real estate brokerage firm in the world. Nick is also a graduate of our real estate master’s program at UCF.

Nick Poole:                         As a disclaimer, typically, I’m working with more of the user and the tenant.

Nick Poole:                         Yvonne and Steve are more so working on the ownership side, or landlord side, but just maybe a couple things about space design, because I’m sure it’s going to come up a little later in this conversation, working from home, or de-densification.

Nick Poole:                         I can tell you that the trend over the last 10 years has been, for companies to move towards a more open, more efficient space design. The result of that is that, space per square, per employee has been driven down, right?

Paul Jarley:                         Yeah.

Nick Poole:                         Some of the most aggressive build-outs that we’ve been seeing, whether that’s call center, or whether that’s open technology bench type seating, those would probably allow for less than 100 square feet per person.

Nick Poole:                         In Orlando, what we were seeing a lot of, pre-COVID was, the move to a more open plan, some place where companies could maximize their efficiencies and put more people into less space, ultimately.

Nick Poole:                         There was a whole variety of different factors that came along with that. Did they have enough parking to accommodate the densification? Did they have enough open and collaborative areas to encourage collaboration and communication for their employees? That type of thing.

Nick Poole:                         But, there was a lot of emphasis on that, pre-COVID. Obviously that’s going to be a big question about what’s going on, moving forward.

Paul Jarley:                         Yeah Nick, I would think so. I will tell you though and if I remember right, Bill was an early mover on this in his own office at the time, but I know we’ve done this in some offices at UCF and in general, people hated it. They hated the open design, particularly the older employees.

Nick Poole:                         I would tell you that, depending on your industry, there’s mixed reviews about whether, or not folks like the open office. I do think a lot of it depends on your industry for one, and obviously your age and demographic probably comes into play as well.

Nick Poole:                         But, I can certainly tell you, when we were out representing, call it Fortune 500s, or even local companies, when they were looking for space, the trend up into the beginning of this year was, we’re looking for open plan, we’re looking for lots of light, we’re looking for exposed brick and beams, some type of industrial feel, something a little bit different, creative. All of those things were of uber importance, before this pandemic.

Paul Jarley:                         Why did industry play a role, Nick? Can you give me an example?

Nick Poole:                         Sure. Like a technology company for instance. The technology companies value the ability to be in an open bull pen type setting, where they are working in small teams or groups, and they’re able to talk to the folks across the desk from them, or they can pick up their laptop and move into a conferencing area, where they can have a training team of call it 10, 15, 20 people all together in a seating area, versus being in a private office like I’m in right now, with my door closed, and not being able to go out and communicate or collaborate with those folks.

Nick Poole:                         In my position, as a broker in a real estate industry, I work on a team. I’ve got four or five other folks. I’ve got a brokerage administrator that helps, and we’ve got a research and marketing team as well.

Nick Poole:                         I will tell you that, I think our productivity was better when we were open and together and around each other, where we could hear each other’s conversations, build on those things, were more aware of what was going on around us. I think in that instance, it actually helped, and probably helped our team be more productive.

Nick Poole:                         There’s an argument whether, or not that carries over across the number of industries, but there is a time and a place for it, for sure.

Paul Jarley:                         Yvonne, what trends had you been seeing?

Yvonne Baker:                   I think it would be very similar to what Steve and Nick have pointed out.

Paul Jarley:                         Yvonne Baker is regional managing partner at Franklin Street, a real estate firm based in Florida. She too is a graduate of our master’s in real estate program.

Yvonne Baker:                   On the landlord side, we definitely saw every client that came through here wanted an open plan. I think that historically, what we saw through different periods of time is, office buildings would be built based on how a developer wanted a building to be built. The developer would say, “Hey, here’s this really cool office building, tenants. Come lease what I have built for you.” Not a whole lot of consideration given specifically to what the tenants wanted.

Yvonne Baker:                   Then, we’ve gone into a period of where the tenants have said, “This is what I want, Mr. Developer.” They’re developing buildings in that way. I think with this pandemic, we’re going to see a bit more of a shift, which is where the employees are saying, “Mr. Employer, tenant, this is how I want to work in my office space. We’re going to see a whole lot more flexibility in how office space is used.

Yvonne Baker:                   We did a pretty large renewal for a law firm in our office building and they went some open and then left a lot of private offices for the senior attorneys in place, but with a completely cool, updated, open ceilings feel to everything. It was a lot of flexibility in how the spaces are being built now. I think we’re going to see even more flexibility as we go forward.

Paul Jarley:                         I guess if I think about the pandemic and the fact that I hear a lot these days, people questioning whether, or not they need office space anymore. I think really, the underlying question is, what’s the value proposition of having an office?

Steve Garrity:                    If you don’t mind, this is Steve.

Paul Jarley:                         Yeah, go ahead. Yeah Steve, yeah.

Steve Garrity:                    I think Nick and Yvonne pointed it out clearly. It’s the thirst, the desire for collaboration. There’s a lot of value associated with getting humans, workers together. I think that’s why the drive has been towards having an open plan, is really for collaboration.

Steve Garrity:                    In doing so, the increase in technology that’s occurred, just over the past eight months, many companies have really shifted their gear towards higher technology and better communication. But the desire to really be together and collaborate I think is a big thing.

Steve Garrity:                    Yvonne pointed out the flexibility and the efficiency. There are some limitations certainly, working from home. I think we’re all experiencing it as we speak, in that it’s again, lonely, so the collaboration doesn’t occur as easily as it should. It’s a new way of language and working that we’re all getting used to, but there is fatigue associated with it. The dust hasn’t settled.

Steve Garrity:                    I think we’re all learning through this COVID time, but I think to answer your question, it’s really human nature to want to be with others, so we can collaborate and really add value to the company.

Paul Jarley:                         Other people have thoughts on that?

Yvonne Baker:                   Yeah, I’ll jump in there. Consistently, we were seeing that our firm relies on the collaboration as Steve said, critically important, like in a sales brokerage operation, but also having the innovation together, having those accidental bump in meetings in the hallway.

Yvonne Baker:                   We work in a completely open environment here at Franklin Street. We have two private offices. In building a firm, it was critical for us to be open, so that we could hear each other, understand how we could team with each other, collaborate with each other, pass business around to each other, and seize opportunities sitting in the office together.

Yvonne Baker:                   That is gone, those accidental meetings in the hallways, when people aren’t together. That’s been our big part. At this point in our office, we have just two people who aren’t back in the office and pretty much everyone is back in the office at least four days a week, because everyone wanted to get back together, worked much more efficiently together, but still had that flexibility to work from home every now and then when we want to and not be afraid of that and not thinking that somebody thinks you’re not working.

Yvonne Baker:                   We now understand that people are working at home for heads down, task-oriented work, and coming into the office for more of that collaboration.

Paul Jarley:                         Yeah, I think that’s an important distinction Yvonne. I do think … Well, to Steve’s point, I think we’ve all experienced Zoom exhaustion. At least I used to have a break, because I would have to walk from one place, to another to have a meeting. Now, I just have them back, to back, to back.

Paul Jarley:                         I think it’s also really difficult to have productive informal conversations via Zoom.

Nick Poole:                         Yeah, agreed. Yeah, I think the thought is that, physical space, you need it, in order to get your people together, right? That’s where the social interaction, the communication, collaboration, all of your information flow is going to occur. Even more so in our industries, mentoring is a big deal. Mentoring and the ability to train somebody, I think is way more difficult to do over a Zoom, or some type of social media type setting.

Nick Poole:                         Whereas, sitting down with somebody, going out to lunch with somebody, having physical conversations with somebody, watching over their shoulder, on the job type training, those are really important.

Nick Poole:                         I think it’s not only important for the development of a person within your organization, but it’s a contributor to establishing a company culture. I think that is what most large, Fortune 500s are concerned about, with allowing their people to work from home all the time, or going completely work from home.

Nick Poole:                         The company culture is necessary to foster innovation, but more so, it’s important to retain your employees and also recruit other professionals. If a company is going to grow and if that’s their desire, to grow, whether it’s revenues, or as a company as a whole, recruitment is necessary. I think that will be the silver lining of having physical space at some level.

Paul Jarley:                         Nick, that’s the thing I worry about the most, here at the university, that the longer the faculty and staff are working from home, even though they’re all really trying to get their jobs done as best that they can, that they’re going to lose touch with the mission.

Paul Jarley:                         Universities are really special places, that involve a lot of that kind of social interaction. I am concerned the more they’re removed from that, the more difficult it is to maintain the culture and sense of purpose that people have.

Nick Poole:                         Look, it’s not just universities, right? I jotted down a couple notes here too, just some research that we put out. A few firms that we’ve interviewed, Goldman and Sachs, Morgan Stanley, Netflix, Facebook, Google, they have all commented back that their respective firms plan to have the majority of their employees continue to work out of physical offices.

Nick Poole:                         That runs the gamut, financial, technology, some that have been around for a long time, others that are new firms. There’s mixed emotions about that, but I think as we’ve gone into the 6th and 7th and 8th month of COVID, people are realizing that, it is an important thing to continue to have, at least on some level.

Nick Poole:                         A lot of these firms are going back with the majority of their employees expected to come back into the workforce as well, and work out of a private office.

Paul Jarley:                         Is it really then, in your minds, just overcoming the fear factor? Do you think once fear of COVID declines, that we’ll see people flock back to the office?

Nick Poole:                         My personal opinion is, our offices have been open since the second week of June, limited capacity, starting at 25%, up to 50%. Now, we have a seat for every one of our producers and admin staff, if they want to come in and work from the office.

Nick Poole:                         I’ve been doing it since early June, and I can tell you from my own personal opinion, I don’t have a problem with coming into the office and working here. I feel just as safe working here, as I would out of my house. I walk to lunch. I go have lunch. I do a lot of those things, with precautions. Being spaced out, with a mask, all of those things that we’re doing.

Nick Poole:                         I think folks that have been given the option to work from home, who haven’t experienced that yet, or like my mom and dad, who live up in Maryland and don’t have the option to go out and travel around, there is this pent up … I don’t know if it’s frustration, or concern, or fear that, you can’t just go out and do those things any longer. I do think that’s contributing a lot to it.

Paul Jarley:                         Other people’s thoughts?

Yvonne Baker:                   To tag onto that, the inconsistent messaging that we get through the media is a concern to a number of people, the few people especially that haven’t come back into our office. They’re just very uncertain as to, do the HEPA filters really work? Do the HEPA filters don’t work? It’s like every day, it’s a different story.

Yvonne Baker:                   Are we supposed to be sheltering in place? Are we not supposed to be sheltering in place? Just the inconsistent messaging makes certain people who are already uncomfortable or confused, peg that on as an additional reason not to come in. They don’t know, so they’re not coming in.

Yvonne Baker:                   I think that inconsistency is the part to play with a few of the people that we have.

Paul Jarley:                         Yeah, I’ll tell you Yvonne, here, and I don’t mean to make light of this, but there’s hardly anybody in the middle. There are people who think it’s the flu and there are people who think it’s the zombie apocalypse. Yeah, hardly anybody in the middle.

Yvonne Baker:                   Yes.

Steve Garrity:                    Yeah, I think it’s heightened when we travel, also. We’ve been up to Massachusetts a couple times, and Colorado a couple times over the past eight months and it’s heightened. It seems like an obvious, so when you go to some other areas and you’re walking the beach and you see people wearing masks when no one’s around and you see people jogging and riding bicycles with masks on …

Steve Garrity:                    A policeman pulled my wife and I over in a small town, in Cape Cod, because we weren’t wearing a mask while we were riding our bicycles, so I think the … this is just a temporary thing. It’s going to get over. We’ll get over it. Not sure how long. No one knows. It might be 12 months, it might be 24 months, it might be longer. It’s hard to say, but it’s a temporary thing.

Steve Garrity:                    I do think there’s a thirst and a desire for people to interact and get together and communicate. I think once we get over a vaccine and having it safe for people to come back, they’ll certainly come back, but I don’t think until then.

Bill Moss:                            Can I ask a question, and maybe this would be for Nick as far as, I think everybody sees the benefit of having employees be able to come to an office. Could you see in the future, when renewals come up, are that 50,000 square foot tenant saying, “We see the benefit of a workplace that people can come to, but we don’t need a seat for everybody, so we’re going to lease 20,000 square feet. We’ll have room for people in the office, but we would expect that work from home thing to continue”?

Nick Poole:                         Yeah, I think it’s probable that it will happen in some form or fashion, for sure.

Nick Poole:                         A couple stats that I threw out here, prior to the pandemic, our research tells us that approximately 10% of professional and business services employees worked primarily from home.

Nick Poole:                         JLL’s research tells us that we expect white collar employees working primarily from home will more than double as a result of this pandemic. We anticipate that’ll be somewhere around 25% of white collar employees working from home, primarily from home.

Nick Poole:                         I could also tell you that, a couple other statistics that I jotted down, US occupancy, US office occupancy, office in particular dropped by 28.9 million square feet in the third quarter. That was even a bigger number than the previous record of 23.2 million square feet in Q2 of 2009, after the financial crisis.

Nick Poole:                         You’re right though, there’s tons of vacant space right now, where companies are saying, “Am I going to continue to pay for this space? Do I need to downsize this space? Should I consider sub-leasing it, or trying to terminate it?”

Nick Poole:                         As a result, sub-lease availability in the third quarter increased to 124 million square feet, across the United States. That’s exceeding any of the records that were established back in the dotcoms. That is happening, and it’s happening in a big way. I think that everybody is going to be forced to consider allowing a portion of their workforce to continue to work from home. We anticipate that, that’ll grow.

Nick Poole:                         The other thing that’s changing though, back to that densification comment that I made earlier is that, you can’t put the same level amount of people into the office, or most companies are projecting that they won’t, if given the option, because they don’t want to push that many people into a small space. They’re got to space them out. They’ve got to de-densify as a result of the square footage per employee is expected to grow, and floor plans are going to change.

Nick Poole:                         I think that they’ll start to counterbalance themselves a little bit. You’ve got some people working from home, you’ve got an increase is space per person. I anticipate there will be some type of counterbalance there, and I think that’s the path forward, at least for now.

Paul Jarley:                         Is this going to be a boon for space design consultants? Are they a thing?

Nick Poole:                         Yeah, they’re a thing. Yes. Yes and no. Yes and no. I think there will be a rollback of densification in our industry as a whole. That’s going to take 180, where companies are rethinking the way that they pack people into space, for sure.

Nick Poole:                         I still think that there will be some emphasis on open and collaboration spaces, or maybe private offices that some people will call huddle rooms, that you can use in a number of different flexible ways.

Nick Poole:                         But, I think your question was, is this going to be a boon for people to go in and redo spaces, or re-plan spaces.

Paul Jarley:                         Yeah.

Nick Poole:                         Yes and no. I think what’s going to happen, at least over the next year or two is that, all of this plethora of sublet spaces, or companies that have elected to terminate leases early, or just vacating space all together, they are going to provide some nice options in the market, where you’ve got furnished, wired, basically ready to go, what we call plug and play in the industry type solutions for companies.

Nick Poole:                         If a company doesn’t want to have to commit to a long five, seven, 10 year type of conventional office lease term, their own money to make the space different, they are going to have a big variety of options out there in the marketplace if they wanted to sublet, or take over somebody else’s space.

Nick Poole:                         We’re already seeing it. The activity that we do have is, on low capital type of moves or relocations in the space that’s more or less built out to a good standard, or something that they could use. Some of them already have the furniture in place.

Nick Poole:                         Companies are giving up space, others are coming in and taking over that space, as opposed to doing a brand new build-out on a long-term lease, because there’s just less flexibility and more cost involved.

Paul Jarley:                         That way, they can see how the world is really going to change over the next couple of years.

Nick Poole:                         Yeah.

Steve Garrity:                    Yeah, it’s probably safe to say companies are hesitant in spending too much money, or any money for that matter, of retrofitting their existing space. They are reacting and addressing their short-term needs, knowing that they can address their long-term needs once there’s some clarity with this COVID.

Steve Garrity:                    The good thing is, I believe, in the office world in Orlando, we had not been overbuilt before COVID. It was very disciplined, so consequently, the sub-lease space that Nick is referring to in my opinion, as it increases, it’s really not going to be dramatically impactful. There will be some options for customers and tenants to enjoy, no doubt, but I don’t think it’s really going to move the needle, assuming that companies are going to be reinventing themselves and creating additional companies that we haven’t even heard of just yet, because of the pandemic that we’re in.

Steve Garrity:                    Consequently, I think they’ll be leasing more space, de-densifying if you will. That open floor plan is critical, but I do think it’s promising and we will recover, like we recover from a lot of things. The question is, when will we start to meaningfully recover? That’s really unknown.

Steve Garrity:                    I think we’re just right now, people are reacting and adjusting to this transition period, which we’re in. But, the good news also is, it’s accelerating many other things, accelerating companies that are currently … we’ve already seen before COVID, but we’re seeing it even more so, companies that are in the high tax states, that really have now accelerated their decisions to really consider moving out of those states, moving into a state like Florida and other places that they can enjoy cost cutting efforts that they’ve always gravitated towards.

Paul Jarley:                         All right, so I’m going to ask you each a final question. I’m going to start with you, Yvonne. Is everybody going to be back in their office two years from now, or not? What do you think?

Yvonne Baker:                   We’re here now, and I think that many people will be back in. I think that we are absolutely moving to a more flexible work environment, going forward. I think we’re going to see great changes and they’re going to be exceptionally positive. I’m really excited about what the future holds.

Paul Jarley:                         Nick, what do you think?

Nick Poole:                         Our general consensus is that, office occupancy today is somewhere probably in that 20% to 30% range, depending on where you’re at. We see this growing to call it 40% to 50% by the third quarter of next year. End of the year, 2021, it’s probably in that 75% to 80% range, but the trend, depending on some type of vaccination schedule will certainly put people back into the office. I believe if it’s 12 months, 18 months, it will occur.

Nick Poole:                         I do think that this is temporary and I do think that we’ve worked the way that we’ve worked for years, and years, and years. We’ve got to get back to that at some level.

Paul Jarley:                         Thanks Nick. Steve?

Steve Garrity:                    No, I’d agree. I’d say we’re heading in that direction right now. Companies are coming back to the office, which is great. We’re seeing our buildings more and more full as the days go on. We’re an example of that, but now, we’re going to be … We’re currently alternating our occupancy, but we’re encouraging people if they would like, during the time that they’re supposed to be working from home, they want to come into the office, they’re certainly welcome to.

Steve Garrity:                    I think that trend is certainly happening, and I think it’s going to … Just the desire and the thirst to collaborate will be satisfied in ’21.

Paul Jarley:                         Bill, I’m going to give you the last word on this, my friend.

Bill Moss:                            Well, I would concur with what Yvonne and Nick and Steve have said. Yes, there will be more employees back in class A, or class B office space going forward. I think Yvonne set the bar pretty low, when she said there were four cars in the parking lot of a 200,000 square foot office building in South Park, so that being said, I think yes. I think there will be more employees. I do think, and Steve and Yvonne and Nick are closer than I am, but I think a lot of companies are going to spend a good deal of time, looking at how much space they actually need.

Paul Jarley:                         It’s my podcast, so I get to go last.

Paul Jarley:                         The death of the office has been greatly exaggerated. Few of us have homes that are set up for work and school for the entire family. Besides, that much togetherness just isn’t a good thing. We’re social creatures, who crave authentic, serendipitous interaction and collaboration with a broad range of people.

Paul Jarley:                         Much of that interaction occurs at work. If you don’t buy that, buy this. People working from home will not get promoted at the same rate as people who are working in the office. Out of sight, out of mind.

Paul Jarley:                         For these reasons, people will undoubtedly be back in their offices in less than two years. My guess is, in less than one year. What the office looks like and how frequently they use it, well, that might be a different story. With personal space being at a premium, I don’t see hoteling or big open floor plans being the trend of the day.

Paul Jarley:                         People are going to want their own office, even if they’re not in it every day. They are going to want that office to provide them protection from viruses and other threats. They’re still going to be able to want to Zoom or work from home on occasion, to get stuff done.

Paul Jarley:                         Greater variety in office space is likely to be the new trend, not working from home. What do you think?

Paul Jarley:                         Check us out online and share your thoughts at business.ucf.edu/podcast. You can also find extended interviews with our guests and notes from the show.

Paul Jarley:                         Special thanks to my producer, Josh Miranda and the whole team at the Office of Outreach and Engagement, here at the UCF College of Business, and thank you, for listening.

Paul Jarley:                         Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Is Working From Home Really a Thing? appeared first on Barry S. Miller College of Business.

As cardboard cutouts occupy the stands at stadiums across the country, sports leagues and teams are dealing with a massive blow to their bottom line. If fans are stuck watching the game from home, it begs the question… how long can sports really be financially viable? Can exclusive, virtual experiences fill the budgetary void left by the absence of ticket sales? Or can the leagues just shoulder the economic consequences until stadiums and arenas are back at full capacity?

Jon Alba:                             The pitcher for the Washington Nationals just knocked this out of the park when he said that sports are like the reward of a functioning society.

Jon Alba:                             [crosstalk 00:00:08].

Jon Alba:                             Mr President.

Paul Jarley:                         If you watched the presidential debate like I did, you might think, well, we don’t deserve sports at all. This show is all about separating height from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? Onto our show.

Paul Jarley:                         Life, for me, had a glimmer of normalcy with this.

Paul Jarley:                         First, it was Korean baseball. Then it was MLS, followed by the NHL, and the NBA. They all started in bubbles. Major League Baseball returned to play in their regular venues, but all these restarts were missing one thing, spectators. The seats were empty. We’ve seen some baby steps towards the return of paying customers and seats in football but the question remains, how long can sports really be a thing if the stadiums are, well, mostly empty?

Paul Jarley:                         Luckily, I know people on the inside who can help us understand what’s going on in sports today. How long this disruption might last and how sports might look different going forward. Listen in.

Paul Jarley:                         Is the current arrangement sustainable financially? How long can the leagues operate without spectators before this becomes a real financial problem?

Shelly Wilkes:                   Well, I can jump in.

Paul Jarley:                         Shelly Wilkes is a graduate of the DeVos Sports Business Management Program here in the college, and was the president of the Lakeland Magic. Now, she’s a senior VP for the parent club, the Orlando Magic.

Shelly Wilkes:                   I think this is not really sustainable. I don’t think it’s sustainable from a society standpoint or a team ownership standpoint. I think that we, as sports leagues, really bring fans together, we bring communities together that’s really what we build our businesses upon, is how do we bring a group of people together to cheer for one common cause. I think that in the short term, everyone understands where we are as a country, where we are as a world with the pandemic. We’re making changes and sacrifices where necessary so that we can continue the game on the field or on the courts. I think everyone wants sports to come back in its entirety. We want to have arenas full.

Shelly Wilkes:                   I mean, you’re seeing even the games that are happening from the NBA standpoint in the bubble. I actually listened to a lot of interviews with the players and though I think everyone’s happy to be playing, it’s not sustainable. You’re missing a sense of energy, you’re missing a sense of comradery and community with the way it’s currently established. Financially, I also don’t think it’s sustainable in the long-term. I know in the NBA, Adam silver has said a few different times that our current financial model has about 40% of our revenues coming from ticket sales and people in the building. So, financially, definitely not a long-term option for us.

Jon Alba:                             I think one of the biggest things that has to be considered in this is the return on investment that media partners are then going to get.

Paul Jarley:                         Jon Alba gives us the media angle under discussion. He’s a sports reporter and anchor for Spectrum Sports on News 13, here in Orlando.

Jon Alba:                             When we had the beginning of this pandemic and there were no sports, there was obviously quite a thirst from spectators. So, they’d be desperate to watch anything. We remember NASCAR went the route of having the iRacing, the electronic racing that fans were turning in, in droves just to watch. Where now… Kind of what Shelly was saying, where you have 40% of the NBA league model set up on spectators actually being in attendance for.

Jon Alba:                             Well, in the last 10 years, 20 years especially, we’ve seen these huge media rights deals become the main proprietor and driver of these gigantic league revenues that we see. If the media partners aren’t feeling like they’re getting a return on investment, I don’t see how any way there would be any sustainability without fans in the stands.

Paul Jarley:                         Jon, if I can follow up on that. First, let me admit to watching Korean baseball games-

Jon Alba:                             There you go.

Paul Jarley:                         … six o’clock in the morning. Life was desperate for a while. But, is viewership up or down for the leagues? I haven’t actually followed that.

Jon Alba:                             I think it’s a case-by-case thing where you will see there’s an immediate payoff for some, and then it slowly drags off, whereas some other leagues may not necessarily be experiencing that. The content right now, that people are most interested in, is national news and national news is doing record numbers for a variety of reasons right now. I think that, that has maybe slowed down some sports, but there are also other sports who are thriving tremendously at this time. Right now, especially referring to the NBA, they’ve got a chance to grab a ton of eyes as they march towards the NBA finals here.

Brian Wright:                     Yeah. I think, as John mentioned, there’s a certain target demographic where ratings are doing extremely well.

Paul Jarley:                         Brian Wright is the general manager of the San Antonio Spurs. In fact, he’s the youngest GM in the NBA. He’s a graduate of our DeVos Program and is the youngest alumni ever inducted in the College of Business Hall of Fame at UCF.

Brian Wright:                     I think the NBA has been the most viewed television program, broadcast and cable among adults, 1849 on 20 of the 25 nights of playoff coverage so far. Obviously, it’s at a point in time when we started in the summer where historically, television viewership rates are at a lower place than when they are at other points in time. I think it’s really done well, but again, I think the entire pandemic has disrupted our way of life as a society and it’s disrupted the sports industry.

Brian Wright:                     I think from that, you’ll see some things that, obviously, to Shelly and Jon’s point, need to change in order for the model to be sustainable. But that disruption probably caused us to look at how we provide content to our fans, to our media partners, et cetera, that create a unique and different experience for those that may not be in the building. And I think there’s a ton to be learned there/

Paul Jarley:                         Let me play with some alternative versions of the future, if you don’t mind, and tell me whether I’m nuts or not. Let’s go there for a minute.

Paul Jarley:                         The bubbles seem to work in the sense that they protect the players from the virus, they’re able to sustain the game. Could you imagine traveling bubbles where the teams and the leagues go from city to city perhaps where the virus is low and would have fans there? I’m taking the example of… I know they do this in rugby, some, and I know they do it in lacrosse where the entire league will go to a particular venue and they will make it a carnival atmosphere for the weekend, and they’ll play a variety of games there. Majorly, baseball is doing something sort of similar without the fans for the playoffs. Anybody think that’s a workable idea?

Shelly Wilkes:                   I think that in the short-term, as a short-term solution, getting to the next phase of what’s playing in a pandemic looks like, I certainly think that, that is probably one of the many options on the table. Again, Jon mentioned this too, I think in the long-term when we go back to the sustainability model of leagues, we do have a lot of revenue and ticket sales but we have a lot of revenue and partnership deals. And when you don’t have people in your stance and you’re not able to take care of your partners within the building with the rights that they have purchased, whatever those marketing rights may be, I think you’re setting yourself up for failure in the long-term again. Based on not having your home game experience, your home right experiences, I just… I think it’s long-term sustainable. I think that it, again, could be a short-term solution to get us past the pandemic, but I can’t imagine that’s going to be something that could live on for years.

Shelly Wilkes:                   To Brian’s point, it could be something when we talk about spreading the game. I mean, not in a bubble format, but you could almost say that that’s what we do on the international scale on the NBA is we take a couple of teams over to Europe or over to China, and we play in a couple of different cities and in that kind of festival atmosphere, and that’s really for fan building and sand growth. So, not in the bubble atmosphere, but kind of the same model of bringing the sport to different places. But in the pandemic and how we really solve for where we are, I just don’t think that that would be a sustainable model for teams or for leagues.

Paul Jarley:                         What would be hard to do over 82 games, but if you’re playing an 18 game schedule like the NFL, I don’t know.

Jon Alba:                             Well, allow me to kind of play devil’s advocate here as the one who covers the sport rather than working on the inside of it. Maybe it comes down to the point where you have to reconsider what your model is for profiting and for how you distribute your money. The reality is, in a lot of sports… I’m not necessarily saying the NBA because I do think the NBA is a relatively affordable fan experience, but there are a lot of sports where you go to a Major League Baseball game, there’s 81 home games a year for a team and the average day at the ballpark for a single person is going to run you well over a 100 bucks if not more, whereas the original model used to be sustainable in that it costs you maybe a grand total of 20 bucks to go to a ball game.

Jon Alba:                             The average fan has been out priced. So, they’re consuming the sports in a different way where now you get your big TV at home, you got your smartphone, there are different ways they can consume it without having to spend all that money to go to the ballpark, to go to the stadium, to go to the arena. I covered the combat sports industry pretty in depth, including WWE, which has rented out Amway Center here in Orlando for-

Paul Jarley:                         Good example.

Jon Alba:                             … a two months day, and they ended up putting all these video screens, even five times more than what the NBA had going. By doing that, they have saved… And I’m not exaggerating when I’m saying this, they’ve saved tens of millions of dollars on production costs that they may reevaluate once things start to become “normal”, where they don’t have to go on the road as much and spend all those production costs because they know that fans can consume the content in a different way and they can cut back on traveling.

Paul Jarley:                         Brian, thoughts?

Brian Wright:                     I’m kind of like you, I always just think of why not. Having a regional type of setup, like you mentioned, I think the difficulty with that comes with logistics and costs and how often… How long are you in each city? How many games are you playing? That type of thing. But I do think, just from a plank standpoint, if you look at the performances in the bubble, it’s been an unbelievable playoff run for a magnitude reasons. I think you do start to ask yourself, well, what’s different? What’s changed? What’s caused it to go so well? For the games to be so good, for it to be so competitive. Is it about travel? Is it about rest? Is it… There are a lot of different things that you can factor in, and the one thing you know that you want back are the fans in the building for that energy and environment.

Brian Wright:                     But I do think there’s a lot of things that you can learn from that five years from now may alter the way that the game is produced or where… How it looks. Some of that, to what you mentioned, could be a cost issue, and also how long are we in this type of pandemic situation. But I do think, again, there’s some learnings that caused you to ask, why not? And then what does… How does that alter the game or the experience for the fans or what have you for the next five to 10 years moving forward.

Paul Jarley:                         Let me go to my craziest thought on this. If we can do this without fans and we can maintain viewership, when will a network say, “Well, this is just a TV show. Why don’t we own it and eliminate the middlemen?”, which would be the leagues. I mean, the WWE model is an interesting one, Jon.

Jon Alba:                             Yeah, [crosstalk 00:13:23]-

Paul Jarley:                         That’s pretty close to it.

Jon Alba:                             … it is pretty close to it. Right now, WWE is in the middle of it’s most lucrative contracts that it’s ever had with Fox Broadcast and with the USA Network and NBCUniversal. But at the end of the day, we are talking about the leagues are the ones that are providing the service and they are so well-established and ingrained in American sports society that we’ve seen networks attempt to have startups, and they just have not been successful, or with new startups. So, I’m not so sure that that’s something that’s on the immediate horizon.

Paul Jarley:                         Anyone else have thoughts about?

Shelly Wilkes:                   I just think that there’s a lot more that goes into the game on the court than the game on the court. I think trying to have a network get into a business that is not really their core business because there are, in Brian’s world alone, just the recruitment of players, the… Keeping people wanting to come to play the cities, which is its own thing, wanting them to be a part of different teams. And maybe in your model there’s not cities, right? There’s broadcast rights and you’re playing for your team regardless of where you live.

Shelly Wilkes:                   But I think that there’s a lot of pieces that go together to create a culture of winning on the basketball court that has nothing to do with the program of the game, the two and a half hour broadcast, right? There’s a lot more pieces of heart of building a team. I struggled with that one a bit as well. It is a crazy idea and I love that you’re thinking outside the box about how we can sustain sports in what could be a longer term situation here. But I do struggle with that one just because of all the other pieces that go into maintaining a sports team.

Paul Jarley:                         Yeah, I’m not sure if that it wouldn’t even come down to financial risk sharing. I mean, that would be a lot to take on, right? As a television entity. I don’t know.

Paul Jarley:                         Yeah. It’s something I… I’m not sure that it’s out of the realm of possibility. I agree with you that I don’t think it’s immediate, but if things continue for a while… Because I’m not sure how much longer this financial sustainability for the leagues is going to be.

Paul Jarley:                         So, when do you think things are going to get back to normal? Anybody got thoughts on that?

Jon Alba:                             That’s a loaded question right there. I think you have to determine what is normal, right? That’s kind of where things start.

Jon Alba:                             I just think this Sean Doolittle, the pitcher for the Washington Nationals, just knocked this out of the park when he said sports are like the reward of a functioning society. And right now, we are just so far from that on so many different levels. You can obviously hope for a vaccine, you can hope for a bunch of other things to fall into place from a health standpoint, but then there are the other things, and we’ve seen how impassioned… Obviously, Brian and Shelly can speak more to this than I can, but the impassion response of these players to what’s happening in American society, I think that’s a real thing and that’s a real tangible effect on their mental psyche. To me, that’s why it’s all the more impressive why you have two teams like the Heat and the Lakers who have managed to get to the NBA finals and make it this far because of the mental toll that this season has taken. So as far as normalcy, I’m really not sure on that.

Paul Jarley:                         Well, it’s a lot easier to control the players than it is the fans. I mean, witness what happened at Florida State a couple of weekends ago, right? Where mask wearing was not common, if I could put it that way. It’s hard for me to imagine, without an effective vaccine, that we’re going to get back to normal anytime soon.

Paul Jarley:                         Anybody else have thoughts on that?

Paul Jarley:                         I think the NBA has got a whole nother season to go through, per example.

Shelly Wilkes:                   Yeah. I think we… I don’t know what normal looks like either, I don’t know when that happens. I mean, you listen to Dr. [Fouche 00:17:44] and he’s telling you end the next year. Then again, it goes back what’s normal, right? Do we want to go back to normal? I know personally, for me, when we just talk about the work world and where we’re at. We’re still working remotely and it’s kind of changed my perspective on the need for a commute every day and rushing out the door with my two daughters, and really kind of accepting that this is okay, and that we can slow down a little bit. So, I think there’s some good that is coming out of this. I think the social justice movement that has been happening, I think, has had so many eyeballs on it because we were speaking earlier about people really paying attention to the news.

Shelly Wilkes:                   There’s not a lot else, they’re home. They’re really paying attention to what’s happening and I think that movement is so powerful because people are paying attention, finally. I think again, do we want to go back to normal? What does normal mean? The… When we get back… When we talked about normal, just in sports and having full arenas with 20,000 fans in the NBA, however many in the NFL day-to-day, I do think we have some time still.

Shelly Wilkes:                   I think we have time. I think even after the vaccine comes out, I think people… There’s going to be just a change in behavior. A comfortability with being around one another, a comfortability of trusting the vaccine and trusting how the medical world is responding. So, I think we’re a solid 9 to 12 months from what we would maybe consider normal. I hope it’s sooner than that. I know the NBA, we’re strongly pushing to play in front of fans and figuring out a way to do that. Whether that’s… If there’s rapid testing opportunities, if there’s shifting how… Capacity levels in buildings, that kind of stuff. So we’re paying very close attention to what college football and the NFL is doing right now, and hopeful that we can find a solution for the 2021 season that allows us to have fans in our buildings.

Paul Jarley:                         Brian, do you see fans in the building in the upcoming season?

Brian Wright:                     We hope, and you see it with the NFL where they’re operating in some places with limited fans, same thing in College. I do think, as Shelly said, that’s the goal. I think we’ll get there. I think the biggest thing, and both Jon and Shelly mentioned it, was you’ve got to define your new normal and that’s everything from experiences to interactions and how the game is played. So, I think as long as you’re open to listening, and I think that’s where the NBA has been far and above a lot of sports leagues is… From everything, from the social justice initiatives to creating a bubble and safe environment to thinking about how we move forward. Great organizations that lead through this situation have to be great listening organizations. What do your fans want to feel comfortable? What do your players need to feel comfortable? What does the environment have to be like to have everybody comfortable, but also create an experience that’s fun and exciting and entertainment for everyone?

Brian Wright:                     So, I think the new normal will start with being a great listening organization and understanding the needs of who you’re serving and building out from there allows us to create what that new normal is. And again, if we think normal will be just going right back to the way it was, I think there’s an opportunity loss to grow. If you look in every industry, disruption is something that changes it for the better, oftentimes, and COVID has definitely been a disruption to this business.

Brian Wright:                     Some of it is definitely negative, but I do think there’ll be some positive things that we can learn from it. Shelly mentioned the remote work and work from home, and what does that allow you to do when you look at hiring talent and bringing people into your organization. If you have remote work, that expands your landscape and pool that you can choose from. So, there are a lot of different things that we will learn from this situation and hopefully come out better, but it starts with being an incredible listening organization and league, and I think to this point, the NBA has done a amazing job at that.

Jon Alba:                             Well, isn’t it amazing too that we’ve packed 20,000 people into arenas and never had hand sanitizing stations before? To me, it’s just even starts with things as remedial as that.

Paul Jarley:                         How do you think, though, it’ll change the fan experience going forward? Brian touched on this a little bit, but if you had two or three things that you might think would fundamentally change going forward, what might it be?

Shelly Wilkes:                   Well, I think you’re seeing it right now. I mean, in Orlando we’ve moved this way and I know a lot of sport teams are moving this way. Just from the ease of food ordering, and delivery to seats, and entering the building with your mobile device versus printing tickets. I think that the technology advances that are going to happen, I think that that alone will increase… I mean, my husband actually works for Disney and Technology, and they’re seeing… Previously before the pandemic, they had mobile food ordering and they had a minimal amount of people, maybe 9% a day, actually utilizing that experience and now it’s over 90%, are mobile ordering from restaurants. That’s how they’re ensuring safety for capacity numbers and food delivery, et cetera. I think that you’ll start to see a much greater technology adoption, which does create a better fan experience from that standpoint.

Shelly Wilkes:                   And then I think, to Brian’s earlier point, we’re figuring out how to include people in the game experience who are not actually in the building. I think the WWE has done a fantastic job of that. The NBA has done a great job from the bubble, and I think that we will start to innovate and find new ways to expand the game experience outside of those 18,000 people that are at a game. I think all of those advances will be hugely rewarding for the teams and for the fans as part of the experience. But I’m sure that this is going to have a long-term ripple effect for those positive advances as well.

Paul Jarley:                         Does that also provide new revenue stream opportunities for you?

Shelly Wilkes:                   Absolutely, I mean-

Paul Jarley:                         With those new forms of engagement.

Shelly Wilkes:                   … yeah. Even if you think about what the league has done with the virtual fans experience. That was a new partner with Michelob ULTRA, they were not a partner of the league. They came on board for that experience. Microsoft came on board and launched that experience within this past six months. So, you’re already seeing, at the league level, how there are business opportunities and business advances because of that.

Paul Jarley:                         Jon, how do you think sports coverage will change going forward? Do you think there are impacts there?

Jon Alba:                             Yeah. I think one thing that we’re seeing now is virtual coverage is significantly easier to do than what some others had maybe asserted beforehand. I can even speak personally, the idea of doing a virtual interview for a story that I was putting together would have been absolute last case scenario, if not impossible when putting together pieces whereas now, that’s a very real alternative that I would say has become the norm, more than anything else in this period.

Jon Alba:                             I could definitely see that opening up a whole new can of worms in terms of who gets access to sporting events because with that, you can now credential bloggers. You could credential people who don’t consistently cover an NBA franchise. Maybe that’s for better, maybe that’s for worse, I’m not really sure how I feel about that, but it definitely creates more accessibility in that regard. But on the flip side of that, I can say that being in a locker room, covering players after games, you pick up on things that maybe the person on the Zoom call wouldn’t be able to pick up on. Whether it’s body language or you hear something, and as a reporter your job is to be that mediator, to provide that link between consumer and product. So, I could see there being some pretty radical changes in that regard.

Paul Jarley:                         All right then. One last question. I’m going to ask each of you answer this. Is sports without spectators still going to be a thing two years from now? Yes or no? And why.

Jon Alba:                             What’s funny is I feel like when you have dissenters, people who are like, “Well, let’s be cautious. Let’s be careful”, then you get this whole backlash of, how dare you not be optimistic, how dare you assert that. But I think we’ll have spectators back within the next… I think the timeframe that Shelley gave is perfect, 9 to 12 months. To what degree, I’m not entirely sure.

Jon Alba:                             I think the more fascinating aspect of all of this will be to see how teams and franchises and entities adapt and bring in these new business models that present sports in a way that we haven’t been familiar with in the past, whether that’s in-person, whether that’s virtually, whether it’s from a media coverage standpoint, and see how we continue to evolve because sports and sports coverage and sports presentation have evolved so much in the last 10, 15 years as is. So, for as terrible as the circumstances have been, maybe it will provide some pretty cool opportunities going forward.

Paul Jarley:                         Shelly.

Shelly Wilkes:                   Yeah, it’s my business to be optimistic in this. So, I strongly believe we will have full arenas in two years. I think we will inch our way there over the next 12 months and figure out what’s going to be the safest for our players, our fans, our staff. But I absolutely have to believe that in two years we will be playing in front of spectators and that the sports industry will come back. It’s historically been the thing that brings people back together after tragedy and after issues that have happened in our communities, and we will be there once we’re able to do that as well.

Paul Jarley:                         Brian, you get the last word, my friend,

Brian Wright:                     Well, Shelly was ahead of me in the divorce program so I’m just going to follow her lead.

Brian Wright:                     I’m an eternal optimist as well. So, I do believe that it will happen, but I also believe that we’ll come out better because I think we’re going to have a newfound appreciation for the fan that does not enter the building. What does their experience look like on a daily basis? How are they interacting with your team, your brand as you build out moving forward? And I think that’s only going to make the power of sports, the leagues and the teams that much stronger.

Brian Wright:                     We’ll understand digital better, we’ll understand virtual fan experiences a lot better. I think how we come out of this on the back end will be that much different. Shelly has always been a leader, so I’ll just continue to follow Shelly’s lead on the optimism. But I do think we will get fans back in the building, and I do think this will create an opportunity for us to build a whole new fan experience that maybe we hadn’t captured prior to the pandemic.

Paul Jarley:                         Well, thank you all for participating.

Paul Jarley:                         Brian, you have a future in politics. If that’s the way that you want to go, my friend, but I kind of already knew that.

Paul Jarley:                         Shelly, I think you hit on the key point here. Consumers are going to decide this, not the leagues.

Shelly Wilkes:                   Yep. Exactly.

Paul Jarley:                         I mean, they’ve got to feel safe coming back in huge numbers. That’s going to be the key. It’s kind of hard to know when that will actually be, but I certainly look forward to the day when I can travel to Lakeland for watching my Tigers spring training games. Can’t come soon enough.

Paul Jarley:                         Hopefully things get back to normal here within the next year. But I do think it’s going to be a year, I do.

Paul Jarley:                         It’s my podcast, so I get to go last. I think I may have asked the wrong question today. My dad was a Detroit Tiger fan for 83 years. He was a fan long before he was a spectator. In fact, I think he probably only attended a dozen games in his entire life. The Tigers, for him, were Ernie Harwell’s voice on the radio. He listened to every game, every season. He, of course, was not alone. The pandemic has made it painfully clear that there has always been more fans than spectators.

Paul Jarley:                         Brian used the phrase virtual fan. I know that’s code for how to monetize the fan base, but I’m still not exactly sure I know how the virtual offense experience will be different than my dad’s or the typical television viewer. During this weird year of 2020, it certainly includes fans on electronic screens at NBA and MLS tournament games, but I doubt that’ll last longer than the day stadiums are back to full capacity. If the virtual fan is a long-term thing, they are probably shelling out money for some new subscription service, a social media platform, or maybe both.

Paul Jarley:                         Maybe 10 years from now, we’ll see 2020 as the birth of the virtual fan and a shift in the revenue base for sports leagues, or just maybe we’ll be back to increasing ticket prices at stadiums filled to capacity. What do you think? Check us out online and share your thoughts at business.ucf.edu/podcast.

Paul Jarley:                         You can also find extended interviews with our guests and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the Office of Outreach & Engagement here at the UCF College of Business. And thank you for listening. Until next time, charge on.

Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

The post Sports Without Fans: Can They Really Stay a Thing? appeared first on Barry S. Miller College of Business.

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Paul Jarley:                         2020 has been the year of the coronavirus, and big money is being put in to find a vaccine. But what if I told you that the spread of COVID isn’t a medical problem, but rather an engineering one. And that two UCF Aerospace Engineers might have a simple, low-cost solution. Would you invest in their project?

Paul Jarley:                         This show is all about separating hype from fundamental change. I’m Paul Jarley, Dean of the College of Business here at UCF. I’ve got lots of questions. To get answers, I’m talking to people with interesting insights into the future of business. Have you ever wondered, is this really a thing? Onto our show.

Paul Jarley:                         Ideas come from unexpected places. Listen to Michael Kinzel, assistant professor of mechanical and aerospace engineering at UCF. Explain the origin of the idea for a COVID cough drop.

Michael Kinzel:                 It was kind of funny, right? My wife was arguing with one of our neighbors on Facebook, about aerosols and how far they can kind of pass from one person to another. And one of the things about aerosols is they’re very small, and if you cough, for example, at that time, they were showing that… Actually not cough, sneeze, if you sneeze, they were showing that these aerosols can travel at 27 feet. My wife was arguing with neighbors like, “Hey, you need to be careful as you go by somebody, maybe move out of the sidewalk.” Because of these aerosols. And it drove me to think, how do you make these… What do we do in engineering to make things not form aerosols?

Michael Kinzel:                 And one of the things that drives that is underlying fluid dynamics processes that associated with how thick your fluid is. So for example, if you think about trying to make small droplets out of oil, it’s a lot more difficult than making small droplets out of water, or even on the other end alcohol. So this is kind of driving, it was kind of, how do you get to a scenario where you don’t enable droplets to travel 27 feet? And if you make them large, they’re no longer aerosols and they have a tendency to fall. So one way to potentially enable that is by making a lozenge that actually alters your saliva. So that it behaves or has a tendency to form these large droplets that don’t persist for very long distances.

Paul Jarley:                         Okay. So first, Michael, your wife has strange conversations with neighbors.

Michael Kinzel:                 Oh yeah, she is. She argues with her neighbors all the time on Facebook.

Paul Jarley:                         I assume at some point you brought in Kareem on this.

Paul Jarley:                         Kareem Ahmed, is director of the propulsing and energy research lab at UCF. And like Michael, he’s an assistant professor in mechanical and aerospace engineering.

Paul Jarley:                         Kareem, what did you think about this?

Kareem Ahmed:               I mean, so we do biofuels research and the alteration of the saliva is a similar reminiscent sort of effect that we study with biofuels where change viscosity and surface tension. And yeah, I mean, that’s the thoughts back then, where it’s a fluid dynamic problem. It’s similar to the expulsion that you have from an engine, same principle that has happening here. It’s just a lower force. And by having this different properties, if your saliva using a loss [inaudible 00:00:03:49], so it impacts its atomization process. So it’s a basic simple principle actually.

Paul Jarley:                         So why didn’t anybody think of this before?

Kareem Ahmed:               Well, it’s just because there isn’t a need for something like this. I think here it’s when you’re bound to the closures and the pandemic and thinking outside the box, why isn’t anybody doing this? Well, first is, I mean, we are human, right? So we want to drink water. We don’t want to have a foreign saliva altering object in our mouth.

Kareem Ahmed:               And in this case, it’s sort of a need, it’s the same thing like the face mask. We don’t want our face mask on our nose and mouth, but it’s a need right now. And I think that’s why nobody thought of it is because of this.

Michael Kinzel:                 I was going to add that people had in the past thought about almost like a nebulizer that focused on the lungs, but nobody’s ever focused on the mouth. So, that’s I think are the unique aspect that we’re doing, and it seems to be pretty effective.

Paul Jarley:                         Is this a potential solution for things other than COVID?

Michael Kinzel:                 Oh, most certainly. Like colds, flus, I think in terms of a longterm application, yeah. Like if somebody has a flu, you may prescribe them some, not prescribed them, you may have them take these lozenge and they’ll have a less chance to transmit flu to one person.

Paul Jarley:                         You touched on another one of my questions here, Michael. So this would be an over-the-counter product?

Michael Kinzel:                 This is kind of where we have kind of a, we’re in a little bit of a bind because when we talk to FDA, they say, “As long as we don’t make a specific claim that this product…” Like if we don’t have a specific claim, we do not need FDA approval, hence it’s over-the-counter. It’s not even an FDA approved treatment, which is the same for a mask, by the way, it’s not FDA approved either because they haven’t done all the clinical studies.

Michael Kinzel:                 In fact, I think a couple of years ago they found that dental floss wasn’t FDA approved to improve your teeth health, but that approval process gives you kind of like buy-in or added, it essentially it gives you more, yes, the FDA says that this actually functions. And in either case, I think it would be over-the-counter because it’s non medicinal. But I think maybe one question is, do we go after FDA approval to be able to make a specific claim on transmission reduction of things like COVID?

Paul Jarley:                         But what about the additives that changed the viscosity of the saliva, or are there any hurdles there? I mean, what are you adding to it?

Michael Kinzel:                 These are just over-the-counter, kind of like food grade thickeners, things that you would put in your, like in cooking. For example-

Paul Jarley:                         Can I have a little flour-

Michael Kinzel:                 Not flour, but like cornstarch and so forth.

Paul Jarley:                         Okay.

Michael Kinzel:                 And things that are… We’re trying to refine our ingredients so that it doesn’t, one that it stays, so it still functions in the context of a lozenge or some other treatment and to making it as comfortable as possible. I don’t know if you have any other comments, Kareem.

Kareem Ahmed:               Yeah. I mean, they’re just off the shelf ingredients that just simply alter your saliva and things like peanut flour, for example, but the alter is the saliva and it makes it highly viscous and reduces your optimization process from a sneeze or a cough, or even a loud speaking. So things of that nature that you could use, you could go exotic with formulated formulas, but for now it’s organic based off the shelf components. It’s like you’re chewing on a piece of bread, it affects your saliva in the absorption and it’s viscosity, so that’s the same principle.

Paul Jarley:                         You might remember Mike Pape from our earlier podcast on, “Starting a business without any money.” He is the Dr. Phillips entrepreneur in residence, and professor of practice in the College of Business. Dr. Pape, do you have any take on the FDA component on this?

Michael Pape:                   Yes. For the FDA, you can use the ingredients called GRAS. G-R-A-S, Generally Regarded as Safe. So if you use those types of ingredients, they mentioned the cornstarch, yeah, I mean, you could do that in a product than do it over-the-counter, and marketed in such a way that it has appeal to some customer segment.

Paul Jarley:                         Well, it would seem like time is of the essence here. I mean, we’d all like to think that there’s going to be some solutions to this COVID virus soon. Is the FDA process a lengthy one, Dr. Pape? Would it take them a long time?

Michael Pape:                   Well, I don’t know if you wouldn’t necessarily have go through that route. You can just use a GRAS ingredient and you can then market it from as you desire. I guess the thing here is, at least from hearing the conversation, what I’ve heard is cough drop, but it really wouldn’t be a cough drop because cough drops, they have menthol in them and it’s derivatives, which are analgesics, which suppress the cough reflex.

Michael Pape:                   So those are very different things. Even those can be ingredients that you don’t necessarily have that FDA approval of, because they’re so used and they’re generic in nature, but this one looks like a saliva viscosity enhancer. However, you’d want to market that for somebody. That’s what it is.

Michael Kinzel:                 Yeah. It’s essentially a confection. I would call it a confection, it’s not really a cough drop of-

Michael Pape:                   There we go. Okay.

Michael Kinzel:                 Most people think of… Well, when I say confection, not everybody knows what a confection is. So the media use cough drops as the generic term.

Michael Pape:                   Yeah, I know. There’s one thing that… Because this is about different solutions. And then there’s the face mask, there’s the face shield, there’s the distancing. And I think everybody would agree that they’re like three leaky buckets for these aerosols and for respiratory droplets and by squishy three buckets together that have holes in it, maybe you can reduce the leakage.

Michael Pape:                   And it looks like this would fit in the category where it’d be a fourth item if you will, that could reduce the leakage. So there might be a case there, but when I think about the solution, yes, you could this confectionary idea. I get it, but you can also reduce the droplets if you will. And it wouldn’t necessarily be viscosity, but you could do it by, I don’t know, I guess drawing out people’s mouth.

Kareem Ahmed:               One of the ingredients actually, and Mike was going to touch on it. We do have a ginger that does tend to do that, reduce your saliva production.

Michael Pape:                   I’ll give you a recommendation for that. Paul and I, are big baseball fans. And we used to buy, I am sure, and just like he did, like I did, we would go buy Topps baseball cards every week, hoping there were Detroit tigers in there. And they would have this bad piece of gum, and we thought it was sent from heaven. When we chew it, and it would go stale in about a minute and dry out your mouth.

Paul Jarley:                         It was terrible.

Michael Pape:                   It was terrible. But we would chew it, and licked through the cards. It was the best clean ever.

Kareem Ahmed:               The cards smell great.

Michael Pape:                   Right, it did. But those are just different solutions, but that same idea of trying to put it in with the current regime of reduction of respiratory droplets and aerosols.

Paul Jarley:                         Mike, I think your card point is kind of relevant here because one of the questions I had is, why would I buy it? Because honestly I’m protecting others, not myself.

Michael Kinzel:                 Personally, I think that that’s the biggest hurdle we have. And because of that, I do not think it’s… I think that there’s probably a few different market or markets to hit and it wouldn’t be the general market, the general person. It might be kind of like, I kind of tried to classify them in my own words, but kind of like a regulated workforce. So you think of like the healthcare, military and elderly homes. People where you have to, places where they have to be together, but they could actually demand, “Hey, you need to take these things and it’ll help reduce spread of disease and so forth.” It seems like the obvious first market to hit.

Paul Jarley:                         Or how about college students to show up on campus.

Michael Kinzel:                 I think that it would be really hard to [crosstalk 00:12:56].

Paul Jarley:                         Yeah. Cameron, what do you think?

Paul Jarley:                         Cameron Ford is an associate professor in our management department, and is the founding director of the UCF Center for Entrepreneurial Leadership.

Paul Jarley:                         What do you think about that problem? Yeah.

Cameron Ford:                  Well, first off, I think this is a really interesting kind of creative solution in that it is, he came up with an analogy in between the aerosols, from the sneezing and everything like that, to these viscosity issues you guys deal with in your engineering research. So making that connection is one of the things I really enjoy seeing people do, and using one thing as an analogy for something else and then thinking for brand new solutions. That was a really cool aspect of your story.

Cameron Ford:                  I think, I’m always looking at use scenarios for something like this, and trying to figure out whether if the solution by itself can address a problem or maybe in combination with something else. So, one thing I’m thinking about as I’m listening to you guys, is whether this is an ingredient that might be combined with something else, like a decongestant or something like that, that people might take as a better version of whatever it is they’re using to deal with like a common cold or something like that.

Cameron Ford:                  The other thing I was thinking of doing by itself, or specific use scenarios. And who would be the 100 most desperate people to use something like this. I’m trying to think of, I don’t know, meat processing plants, places like that.

Paul Jarley:                         For someone who has someone-

Cameron Ford:                  Like Paul’s kind of thinking where it’s kind of high incident rates where maybe an employer could enforce utilization and it would solve their problem-

Paul Jarley:                         Or a susceptible family member maybe, Cameron?

Cameron Ford:                  Yeah. Something like that, maybe.

Paul Jarley:                         That would be another category I thought about.

Michael Kinzel:                 Yeah.

Cameron Ford:                  The people are trying to either, in the global way of thinking about this kind of, and people are buying something or either trying to achieve a positive outcome or avoid a negative outcome. This is clearly a scenario where you’re trying to help people avoid negative outcomes. So getting your relatives sick, getting a child sick, getting a coworker sick, those would be the kinds of scenarios. So what are the worst ones of those that you can imagine, and then maybe focus on those.

Michael Pape:                   Yeah. I agree with Cameron. There’s a product market fit issue, and Michael mentioned that. And the idea is who would be an early adopter of this? It wouldn’t be for the masses. It doesn’t seem like you’re going to pop one of these in your mouth before you go into public, to protect other people.

Michael Pape:                   But if you have an acute situation with the relative, I’ll give you an example. Like my mom, she’s 87, she’s in a senior living facility and that senior living facility, it’s up in Michigan, they have a gazebo out there. You have to rent the space for an hour. Family members walk around on the lawn to sit out there in chairs that are far apart and they got to be masked, but you could see using and mandating something like this be used in the senior living facility, and family members utilizing it. If it can be acted on quickly, I think they could possibly mandate something like that.

Cameron Ford:                  Yeah. To piggyback on Mike, I would suggest that there’s places where the use of this might be mandated for some kind of broader benefit for a population of people that are maybe in a prison or in a nursing home or other high incident places that might be a good way of doing it. Because to Paul’s earlier point, this isn’t something would probably be real pleasant to consume. So it might be better to have it in an environment where they’re doing it for some other reason.

Paul Jarley:                         So gentlemen, how long do you think it will take you to get into market? Michael and Kareem.

Michael Kinzel:                 Yeah. One of the things that we were… So our goal was to get it to market as fast as possible. So our initial thinking was, “Okay, why don’t we hit up the companies already developing lozenges or other kinds of things like the Nicorette gum.” But we have not had much success going with a licensing option with that, which would be licensing out our technology to one of these larger corporations.

Michael Kinzel:                 So we’re still trying to do that. And we feel like if we could get it licensed, they could get out to market very quickly because it’s really not that complicated of a feat. But what we’re doing now is trying on our own and exploring options to get funding, to push it out to market, but then it has other issues. Because we have to worry about getting it into supermarkets or getting it purchased by like the elderly homes or healthcare companies, right? It’s a lot more complicated when you pushing things out to marketing, and getting buy-in and so forth. We really were hoping the licensing option would have worked, but I don’t know if maybe we’ve missed, we haven’t hit the right companies interested in it so far.

Paul Jarley:                         Is this an idea you can patent?

Michael Kinzel:                 Yeah. It is patentable. Yeah, that’s bottom line.

Paul Jarley:                         Michael and Cameron, you got any potential partners in mind for these guys?

Cameron Ford:                  I was wondering if you’ve spoken to any food co-packers or other food manufacturing outfits that might be able to work with.

Michael Kinzel:                 We’ve mostly spoke to a lot of the big pharmaceutical companies like Bayer, Johnson & Johnson, GSK, a few other companies. And I don’t know, maybe we’re hitting the wrong routes, but we didn’t get any interest from them. But we also tried like with Ricola, but we have not hit up some of the… I think probably the best one is that, I forget what it’s called Melendez or the one that owns Halls and Nabisco. They might be another one to hit up, but yeah.

Cameron Ford:                  I was wondering about some food co-packing companies that may have excess capacity and might be able to give you a fairly good rate for manufacturing, to what were you talking about, but then you would have to put up money to make that happen.

Michael Kinzel:                 So that is, literally this week we’re putting in, we’re trying to get find ways to fund this and we’re exploring options of getting investments, but we’re also exploring government SBIR routes as well. And I think once we… If we’re able to get funds through that, that might be, I think that’s an excellent idea. When you say a co-packing, I guess I’m not completely clear what these kinds of-

Michael Pape:                   Well, this is Michael. Kareem, correct me if you see it differently, but there are plenty of places that make, let’s say vitamins or various things, and they do the packaging. So all you do is you set up an agreement with them, and if these are just off the shelf kind of ingredients, they can make Primal pills, they can pump these out. And they can sell them under private label. You can put your own label on there, it looks like it’s coming from your own company. And it would be a marketing play, basically.

Michael Pape:                   And you would just have to market appropriately. You could do that online. You might have some boots on the ground that could go to senior living facilities in the area, and get some validation from them. And then you’re on your way. And you just put on your website, you would put the data that you have generated in the lab instead of a white paper, and that would be your basis for marketing.

Michael Kinzel:                 I got you. Yeah, I did see these, I didn’t know what they were called, but that does make it practical from a startup point of view, I think-

Michael Pape:                   They’re like outsource manufacturer.

Michael Kinzel:                 Yeah, it’s-

Cameron Ford:                  Now, would you be able to make batches of this in a home kitchen or a small commercial kitchen?

Michael Pape:                   You’re thinking farmers market, like I was thinking?

Cameron Ford:                  Well, kind of. I mean, this is the kind of thing where they, you can legally manufacture food in a home setting under a craft food arrangement, and then you could take boxes of these things to various kinds of places like Mike has described, and see what people think. Do they taste so nasty they would never want to use them? Do they see some value? It would give you a lower risk way of seeing how people respond to the product before you put a bunch of money in to manufacturing a whole ton of it, and then having it end up in your garage.

Michael Kinzel:                 Yeah. They are easy to make. The problem that we always have with the, it’s not nasty, but for example, we can make a new batch. I mean, I made a few batches of [inaudible 00:21:39] in it. It took about an hour each. It’s not overly time consuming, it’s just getting the ingredients correct.

Michael Kinzel:                 And I think the other thing we’re trying to work through is testing. How do we make and test, make and test, make and test as fast as possible? Because we have our testing equipment that we have, but it could take a while. So we’re trying to refine that process, develop a very fast development than test type methodology. I don’t think that it will cost more than a [inaudible 00:22:15]. I mean, the ingredients are not exotic. We have even flexibility in the ingredients, so we could kind of switch some of the ingredients up. I mean like Kareem said, “It’s like ginger, cornstarch.” And how do you make it in the context of a lozenge that they still remain effective.

Paul Jarley:                         So how much would they cost?

Michael Kinzel:                 I mean, when I make it in my home, it costs $2 and I make a hundred of them.

Paul Jarley:                         Cameron And Michael, what other thoughts do you have for these two?

Michael Pape:                   I mean, if you can make them, we’ve had plenty of people who is, Cameron said, “Take foodstuffs and make it.” And now, go to a farmers market, they’ll get customer feedback. But if you can make these ginger and cornstarch, I know it sounds like an Asian stir fry, but those are simple enough ingredients to utilize and begin to see what people would be interested in.

Michael Pape:                   The data that you have to generate, because it’s primarily would be a marketing play. You wouldn’t have to have this in a publication ready type data and all. That’d be more like a white paper, but it was done by real life scientists, but it wouldn’t be some sort of peer reviewed thing at all. It would be enough to be able to show this on a website. It’s a bit populous, it might be. You might recoil from that, but the fact of the matter is there’s different types of science for different types of products in order to get some traction.

Michael Kinzel:                 I mean, just a quick question there. If we were going after data, I mean, our data currently is like how far droplets traveling and what’s your exposure level at various distances, it’s very detailed data. And what I feel like you’re going after is more, either data associated with taste or is it data associated with transmission rate.

Michael Pape:                   No. That transmission rates would be too tough, but I think what you’re saying is about the projection. Let’s say of these… We talk about having maybe the money slide, the money slide is one where people see and they go, “Oh, I’ve got to have that.” If you had a money graph, which is you show plus and minus a couple of three ingredients, most people can read the graph that you showed the projectile is reduced significantly. That’s what you go into, particularly with healthcare professionals. And they might say, “Hey, I like this. We have family members coming in, we’re going to have them try it.”

Michael Kinzel:                 Can I show you our potentially money graph?

Michael Pape:                   Sure.

Michael Kinzel:                 Processed aerosols coming from a sneeze. This is a sneeze at the mask, and this is our ingredient or lozenge ingredients. And then this is a droplet projectiles. I would say that the lighter the color, the further in time it is. So this is a droplet that after like half a second.

Michael Pape:                   Yeah. There you go, Michael. This is the first page of the web of your website.

Paul Jarley:                         Yeah. I wonder how much the lodging guys are dismissing you because they’re not used to talking to engineers.

Michael Kinzel:                 Well, there’s not enough money in it, Paul.

Paul Jarley:                         Yeah. I know.

Michael Kinzel:                 There’s not enough money.

Paul Jarley:                         Markets-

Michael Kinzel:                 It’d be a low margin kind of thing and it’s just not worth, it’s not opportunity cost for them.

Paul Jarley:                         Yeah.

Cameron Ford:                  One thing you might want to look into is there’s a recent, I believe it was MIT in Oxford came up with a new way of classifying situations with regard to their risk of COVID transfer. And they looked at volume of speech as one of the variables. So they had being silent, a normal conversation or speaking loudly or singing along with all the other factors that we’re used to talking about.

Cameron Ford:                  I’m just wondering if using a lozenge, if you were in those kinds of higher volume settings might lower the risk because they used the kind of a green, yellow, red kind of stoplight kind of analogy to show which situations are safe and which were highly risky. You might be able to take a lot of yellow situations and make them green using a lozenge like this.

Michael Kinzel:                 Oh yeah, definitely. It basically makes your saliva in a way, like ketchup.

Cameron Ford:                  Nice.

Michael Kinzel:                 When you pour ketchup, it doesn’t-

Cameron Ford:                  I wouldn’t put that in the marketing [crosstalk 00:26:42].

Paul Jarley:                         I didn’t know if you’re selling it there. Yeah. I’m not sure you’re selling that.

Cameron Ford:                  Well, the things why they couldn’t get across that Mike and I really work hard with our students on. The methods that we advocate are really trying to get people to mitigate risks at every step in the process, by thinking about things that they don’t know yet and figuring out what’s the sort of least, the lowest commitment way in terms of resource expenditures, so we can utilize to figure that out.

Cameron Ford:                  So that’s why we’re talking about making small batches in your kitchen, taking those out and actually showing them to people, getting them to taste them and see if they can tolerate that. Show them this money slide and see if they get excited. There’s a lot of things you could do that would cost little to no money to learn a lot more about the potential attractiveness this might have for different consumers. And that’ll allow you to make more well-reasoned investment decisions, both in terms of time and money moving forward with this. So this is great stuff.

Paul Jarley:                         But it’s a very cheap solution, right guys? So it’s really about finding, in my mind, where the risk and the price point maybe kind of match.

Michael Pape:                   Yeah. It’s complimentary to current methodologies, the current approaches, the mask, the shield, the distancing. It’s just another one, it’s the three or four leaky buckets. None of those are perfect, but just smash them together, it can hold more water. Man, you guys, people, if they saw this kind of thing, you really would be all over the news, it’d be crazy because it’s simple to understand.

Michael Kinzel:                 Yeah.

Michael Pape:                   And the news agencies are looking for real life sciences to talk about stuff. You might be able to get some real traction. Even with this, I have to say.

Paul Jarley:                         You got to get Dr. Fauci to take one [crosstalk 00:28:36]. You got one influencer here, we got to get to him. He can’t throw a baseball.

Michael Kinzel:                 Yeah, we saw that.

Paul Jarley:                         We definitely said… So I’d interested to hear from Michael and Kareem, what do you think the learning lessons are for students here on your journey so far, what would you tell them?

Michael Kinzel:                 Never stopped thinking about what you’re doing and applying it to the real world. Sometimes you get wrapped under the axle on just details of flow. And I think it’s kind of cool to think of outside the box and apply what you learn. So Kareem and I both do aircraft almost exclusively, right? And what you learn in the context of an aircraft could be very applicable to almost any field.

Paul Jarley:                         Oh, handing them out on airplanes might be an interesting thing.

Michael Kinzel:                 Yeah. The airplanes would be a definite… Those are lists that we have kind of running airlines in our kind of like second approach.

Paul Jarley:                         Other thoughts for students? I’m sorry, gentlemen, I kind of cut you off. Cameron and Mike, any thoughts on that?

Cameron Ford:                  This a good example of the uncertainties that you face. There’s a lot of different possibilities, so taking a batch of these and visiting with various options you have here, would give you a lot of insight on who got excited and who would be most likely to use it. And you could lean into those enthusiastic people.

Paul Jarley:                         Mike [crosstalk 00:30:08] to follow up?

Michael Pape:                   Yeah. So many times I’m in the technical side of things. If you produce a patent in the academic setting, it’s a lot of times it’s a solution looking for a problem. And then it’s very difficult to think commercial, when you’re getting your PhD or you’re working on your manuscripts and all of that. But here’s one, because this has been so much in front of everybody’s space, which is intriguing, with the COVID. That you guys automatically took something from one field, fluid dynamics and applied it to our current problem.

Michael Pape:                   And the entire scientific community, people who never thought they’d be working in biology or in viruses have completely switched over, and are finding some way to attack this virus. And you guys did it simply because it was really right in front of your faces. And that’s a lesson is trying to expose yourself to what is going on in the world. And you’ll find these ways that will guide your research into a commercial vein perhaps. And that can be really powerful.

Paul Jarley:                         Kareem and Michael, how much more time are you willing to put into this project? What would make you stop, what would make you continue to go forward with it?

Michael Kinzel:                 If we can’t get money, it’s going to be really hard to really push out as a product. But I like the thinking that you’re saying on terms of just doing a little bit more research on, and looking a little bit more into some of the details to better potentially license. I think if we had more information and we get to continue to hit up licensing firms, that seems like, we’re still going to push that at least for the next year, if we’re able to get money in terms of…

Michael Kinzel:                 The other thing is, is do we get money from the government? That seems like an obvious one we’re going to push forward until we stopped getting money through this SBIR route. I don’t know how much I want to go into looking at foreign investors from other ends. I think if it fell right in front of me, I will do it. But I don’t know if I want to really push hard on that end and going to trade shows and these sorts of things. I mean, but we do have students and researchers that work with us that might be willing to do that. So I guess it’s not just us, it’s a whole team of people that are potentially pushing this.

Paul Jarley:                         Kareem, any other thoughts on that?

Kareem Ahmed:               I think, like you mentioned, that time commitment is always a challenge for this because it’s not our main core focus-

Paul Jarley:                         Yeah, it’s not your day job, right?

Kareem Ahmed:               Exactly. And I think that’s one of the things that is hindering us from moving this as quickly as we can primarily, because of that. So would we find a path where we completely take this and forget our day job, it’s a little bit challenging at least it takes off, right?

Paul Jarley:                         So Cameron and Mike, I’m going to put you on the spot here. Do they have a thing?

Cameron Ford:                  Well, I would encourage them to think more about the demand side and the customers you might go talk to, rather than the supply side, in terms of doing more research and kind of tweaking it in the lab. If you can drive to the airport, you can drive to a cruise ship port, there’s people you could talk very locally who would help you understand whether anybody’s excited about this. You might even be able to get a senior design student team involved in maybe going out and doing some of that legwork.

Cameron Ford:                  As I look at all these markets, I think it could be a thing. I think of probably a small to medium sized thing. It seems like this would be a very nichey kind of application, but I could definitely see there being some merit in some of these scenarios.

Paul Jarley:                         Mike.

Michael Pape:                   I don’t think it’s a thing yet. There needs to be product market-

Paul Jarley:                         It’s my podcast, so I get to go last. When I was at the university of Kentucky, I remember having a conversation with the Dean of engineering, where he claimed that all innovation occurred in the lab. I disagreed, and told him that innovation came from customer need. Mike Pape, said it best during this podcast. Frequently inventors have solutions looking for problems. One of the beauties of having engineers and scientists work with business folks is that they can help them find the right match. It’s why we’re so big on having business and engineering students work together in the college of business.

Paul Jarley:                         COVID is most definitely a problem. It has wreaked havoc with public health and the economy, but the COVID cough drop. Isn’t a solution for someone who has COVID, it’s a way to mitigate the spread of the virus to others, much like a mask. The key question is, whose problem does that solve? Maybe people who have loved ones, who are more likely to develop serious health problems than the virus, would purchase the cough drop to protect them, or companies that are trying to convince people that it’s safe to interact with their business might buy the cough drop in bulk and pass it out to people on airlines or cruise ships or at amusement parks or at sporting events.

Paul Jarley:                         But compliance with the cough drop taking would be tougher to monitor than wearing a mask. And the expense for mass gatherings could become pretty significant. Might the COVID cough drop find a niche market? Maybe, but I doubt it’s going to be the next big thing in defense against the virus. What do you think?

Paul Jarley:                         If you’re really geeky, and want to hear the extended conversation we had about the COVID cough drop, check out the show notes for this episode at business.ucf.edu/podcast. You can also find extended interviews with our guests, and notes from the show. Special thanks to my producer, Josh Miranda, and the whole team at the office of outreach and engagement here at the UCF College of Business. And thank you for listening until next time, charge on.

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Listen to all episodes of “Is This Really a Thing?” at business.ucf.edu/podcast.

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