REAL RISK AND REAL RISK ABATEMENT

REAL RISK AND REAL RISK ABATEMENT

We know that some of you will snicker at the next few words we type.  And to be honest, we’re a little surprised ourselves.  Nevertheless, there’s an interesting piece in the latest edition of The Economist.  The story is about the Women’s Tennis Association (WTA) and its uniquely bold and strong stand against the Chinese Communist Party.  We’re pretty sure that the folks at The Economist – the quintessential purveyor of marginally right-of-center globalist conventional wisdom – haven’t thought through the implications of what all this might ultimately mean, but that’s fine by us.  In any case, the story goes like this:

On December 1st the Florida-based Women’s Tennis Association (wta) said it would stop holding tournaments in mainland China and Hong Kong in response to the silencing of Peng Shuai, a Chinese tennis star, after she had publicly accused a former senior Chinese leader of sexual assault. Steve Simon, the wta’s boss, used language typical of human-rights groups, not of firms with profits at stake. He accused China’s leadership of failing to handle the matter credibly: “I have serious doubts that she is free, safe and not subject to censorship, coercion and intimidation.”

For years most executives of global sporting leagues, as well as athletes with high profiles in China, have strained to avoid offending Chinese officials lest they lose access to a lucrative market. But as China’s human-rights abuses have become more egregious, the reputational risk of keeping quiet has grown. In November the International Olympic Committee held a video call with Ms Peng and gave a sunny assessment of her well-being. It was widely viewed as a craven effort to help China stifle controversy in the buildup to the Winter Olympics in Beijing in February. America’s National Basketball Association (nba) has tried to keep on China’s good side since a team executive’s tweet in 2019, expressing support for protests in Hong Kong, prompted a temporary ban in China on nba broadcasts. Adam Silver, the NBA’s chief, said the episode cost the league hundreds of millions of dollars….

By pulling out of China, the wta faces losses of tens of millions of dollars annually, including sponsorships for its tournaments (nine had been scheduled in China for 2022) and fees for online streaming rights. Athletes who have backed Ms Peng have also taken a risk, including that of being shut out of China and thus being denied the opportunity of winning prize-money and endorsements there.

Now, there are several things worth noting about this piece.  First and foremost is the question of “reputational risk,” which The Economist suggests is growing for those athletes and sporting leagues that are tied to China.  We have no idea whatsoever if this is a mere assertion by the magazine (and its anonymous writers), or if there is any sort of evidence supporting the claim.  We hope very much that there is some evidence, even if anecdotal.  Our own entirely unempirical and thoroughly haphazard analysis suggests otherwise, but we’d LOVE to be proven wrong.  The Biden Administration is planning a diplomatic boycott of the 2022 Winter Olympics in Beijing.  That’s really neat and all, but…nobody cares.  We’ll talk again about “reputational risk” if/when they pull the athletes.  Until then, it’s just posturing.

Beyond that, what’s interesting about the story is that it focuses exclusively on sports.  Even as the writers acknowledge the economic impact that fighting with China will have on the WTA and its athletes (Serena Williams, for example), they fail to draw any implications beyond “sports.”

Look, here’s the deal: sports are for kids.  Anything beyond high-school and lower-division college athletics is INARGUABLY a BUSINESS.  Last week, in an op-ed for the Los Angeles Times, three college professors mentioned Lincoln Riley’s new $110 million contract to coach USC and Brian Kelly’s $100 million contract to coach LSU.  The title of their piece (which is actually about the exploitation of college athletes) is “How can colleges afford to pay outlandish salaries…?”  The better question is “how could they not?”  Sports – major college, professional, whatever – are BIG business.  And as with any business, performance in the C-suites matters.  In the grand scheme of the business known as “USC FOOTBALL,” $110 million is a drop in the proverbial bucket.

So, here’s our question: if The Economist thinks that there is increasing reputational risk for athletes who ignore China’s “human rights abuses,” (which might, more accurately, be called Sino=fascism), and if athletics are a business, then is there also increasing reputational risk for other businesses that are up to their eyeballs in China?  And if not, why not?

As we said, the folks at The Economist represent the opinions a very significant chunk of the Anglosphere’s business and ruling classes.  And they seem to be rather supportive of the WTA’s actions.  After all, the aforementioned article appear in the print magazine under the headline “Ballsy.”  Still, we can’t help but think that they’d find it far more treacherous and far less “ballsy,” if, for example, there was some “reputational” pushback against Apple, Disney, Tesla, or BlackRock for doing business in China.  Tim Cook, the CEO of Apple, is probably a louder mouth about “human rights” in the United States than even LeBron James.  Shouldn’t he face the same scrutiny and the same reputational risk as james and the NBA?  And if not, why not?

The Economist can’t answer those questions, largely because it doesn’t really know what it’s talking about.

Above, when we suggested that the nice people at the magazine probably hadn’t thought through the consequences of their tacit support for the WTA, this is what we meant.  Why should they – or anyone – think it refreshing that some brave women are willing to stand up and take a financial hit to support their beliefs but not want the same for men like Cook, Musk, Fink, and Dialo?  Shouldn’t AT LEAST the same be expected of them?  Why shouldn’t Jamie Dimon’s head be on the chopping block for his coddling of the Butchers of Beijing?

Regular readers may know that we are fans of neither the term “reputational risk” nor the practice it describes.  As we have noted before in these pages, reputational risk, in essence, is a term of art for blackmail: “Do as we say, or we’ll trash your reputation.”  It is a practice that is “driven by the egos of activists (outside and inside corporations) and both present challenges that are external to business function and are created specifically by the political demands of politicized constituencies.”

But that’s not what is going on here.  The reason that The Economist struggles to put any heft behind its claim of increasing reputational risk is the same reason that it so willingly differentiates sports businesses from other businesses.  In brief, this isn’t about “reputational risk” at all.  Rather, this is about REAL risk and real risk abatement.  The WTA is different from the NBA and Major League Baseball and BlackRock and all the rest because it has experienced FIRST-HAND what the Chinese Communist Party is capable of doing.  One day Peng Shui was there, and the next day she wasn’t.  A real, tangible person – someone the leaders and other members of the WTA know personally and saw every few months – was disappeared by the CCP.  THAT’S the risk that is important here.

We apologize for misleading you above.  We made you think that The Economist had gotten something right, despite its best efforts.  In truth, the story is interesting specifically because The Economist gets it upside down.  The Peng Shui/WTA story that The Economist cheers isn’t about “reputational risk.”  It isn’t about the damage that could befall athletes or businesses because their associations with the CCP could be manipulated by activists.  It’s about how China’s Communist government is a real risk to real people, and only one business, thus far, has had the ballsiness to stand up and say as much.

The Economist notes that “There has been less sporting criticism of other human-rights problems in China, including the mass internment of Uyghurs, a mostly Muslim ethnic group.”  Pardon our French, but No merde, Sherlock?  That’s a distant situation that is happening to other people and that can be easily put out of one’s mind.  It’s not tangible.  And, if one tries hard enough, he can pretend that it’s not real.  But Peng Shui is different.

The biggest problem here is, as we’ve said, The Economist is considered “smart” reading by the smart set.  We’re dubious about whether it is actually “smart.”  But we have no doubt whatsoever that it is cowardly.  It cheers on women like Serena Williams for standing up to Xi Jinping but doesn’t suggest that anyone else do so.  And it certainly doesn’t dare to do so itself.  That would be risky.  And neither The Economist, nor Jamie Dimon, nor Larry Fink, nor LeBron James, nor Adam Silver, nor Tim Cook is anywhere near as brave and as willing to absorb risk as a bunch of girls who play tennis.

THAT’S the story here.  That’s why this is both interesting and telling.  This is all about REAL risk and the rest of the world’s unwillingness to see it.

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