You're watching TBPN. Today is Thursday, September 3rd, 2026. We are live from the TV. Ultradom, the temple of technology, the fortress of finance, the capital of capital. Let me tell you about ramp.com. Time is money. Save both. Easy to use corporate cards, bill pay, accounting, and a whole lot more all in one place.
It's model mayhem, folks. It's model mayhem. We got tons and tons of new AI model releases. It's a great week to be into AI. I think all the lab leaders, they got together. They said, "You know what? People just love AI. Let's give them more. Let's all team up to launch new AI for them the same week so that everyone has something just to be happy about, you know."
That's right. That's right.
Uh we got Anthropic Fable 5.1, we got Muse Spark 1.3, we got Gemini 3.8 Flash. OpenAI's tease of Astra is a GPT-6. There's a six where the S goes in one of the videos. People will figure it out. But the model mayhem is continuing. Everyone got back from their long summers, their vacations. They said, "We got to, we got to launch something new. We got to update this stuff."
And we're all down this morning.
People thought Astra might have escaped. Kind of a DeepSeek moment for AI maybe. What do you think's going on?
Do we actually understand why all of the different models went down at the same time? Because it's easy if it's like AWS went down and it took down a bunch of... US East one.
No, no, Gemini wasn't down.
Oh, Gemini was never down.
Oh, okay. Okay, okay, that makes sense. So, Amazon clearly very critical to the, to the global internet. Uh, good luck to the folks over at Amazon that are fighting the good fight. Keep... Couple big announcements. One, which we got... Shimat's birthday.
Should we sing full happy birthday?
I think full happy birthday.
Happy birthday to you. Happy birthday to you. Happy birthday, dear... Happy birthday to you.
And All-In conference is coming to Los Angeles, I believe, couple weeks. Very exciting. Sign up.
Wait for our invites. So, wait for our invites.
I think we, I think you've been invited to pay and go if you want to go.
Good to know. Uh, equally important.
TBPN's Road to Christmas.
Christmas. How many days?
I got to say it's feeling like it's going a little slow.
Yeah, it... I wish there would, I wish I was feeling more pace.
Okay, think about it this way. We're only 13 days away from double digits. That's a big moment. That's a moment everyone's gonna be talking about on the road to Christmas.
When we get to 99 days till Christmas, that's when you can start a countdown.
If you get a really big advent calendar, you can basically start that.
Typically advent calendar starts December 1st. Why not 99 days away?
A Q4 advent calendar would be pretty elite by TBPN. Little treats along the way help you hit those KPIs.
That could work. That could work. Uh, let me give you the roundup on the model mayhem that's going on. First, let me tell you about CrowdStrike. Your business is AI, their business is securing it. CrowdStrike secures AI and stops breaches. So, uh, Anthropic launched Claude Fable 5.1 alongside the restricted Claude Mythos 5.1. Google released Gemini 3.8 Flash and a cybersecurity focused version. That's good news. Uh, Meta released Muse Spark 1.3. So, uh, it might not be that much of a surprise that Anthropic seems to have the strongest model of the three with Fable 5.1 scoring 66 on the, uh, Artificial Analysis Intelligence Index. Uh, that is the bar chart that everyone has been posting, uh, in this cycle. It feels like, uh, we're sort of maybe getting to the end of the benchmark era. It feels like when these models are released, it's much better to solve a novel math problem or do something else. The pelican on the, pelican on the bicycle is still, still one of my favorites. Yeah, I love that one. But yeah, um...
It does. But the benchmarks, you know, there've been accusations of bench hacking, hard to interpret many of them.
Very, very low trust in benchmarks. And at this point, everyone has had enough experience using various models.
They have their own sort of internal benchmark.
And so the, the demos of like, I built this game, I did this thing with it. Uh, and then also just the trusted voices of people who, you know, use a bunch of these models and they kind of give you the breakdown of what they like, what they don't. Uh, that has been where people lean a lot more. But the Artificial Analysis Intelligence Index, this bar chart that you see, has been a good way to kind of compress down a bunch of benchmarks into one meta benchmark. So, uh, Fable 5.1 got the highest result ever on the index. The score is also ahead of Opus 5, which got 63, and Fable, which got a 62. Anthropic says, "Fable 5.1 is also cheaper and more efficient, made possible by an improved caching system. Should make ordinary workloads 25% cheaper and long-horizon agentic jobs 45% cheaper." The company says that's good news. Uh, interestingly, as, uh, and as Ben Thompson pointed out, Anthropic is also sort of dropping its no zero data retention policy. Um, which there was a whole news cycle around a few weeks ago. People were saying, you know, why is Fable not taking off in adoption? It's a really great model. And there were a bunch of different explanations. One of them was companies demand zero data retention. They don't want closed-source AI labs to be hoovering up their private information.
Yeah. And I think they said functionality that will allow for data retention, but it's on servers and infrastructure that the company owns.
So, you do keep some of the data. You still are monitored for hostile usage, but it's not going straight into Anthropic's databases.
So Alex Karp and Sautinella both warned against this idea that models, uh, that, uh, companies should have data sovereignty. So the policy is going to be replaced, the no zero data retention, no ZDR, is going to be replaced with something called EFS, Enterprise Frontier Safeguards. Uh, and, uh, and that may have attributed, may, may have contributed to lower Fable adoption among enterprises, and it sounds like it was a direct response to user feedback. So good news that, you know, the people spoke and the companies listened. So, uh, over in Google world, Gemini 3.8 Flash is the company's third Flash release in six weeks. They are flashing out these Flash releases. It scored 73.7% on DeepSWE, just behind Opus 5 and competitive with models that cost several times more. Uh, independent testing gave it a 59 intelligence score, which isn't the absolute frontier, but it's a great result for a model generating roughly 300 tokens per second. So very quick and very good at coding, at least on this particular benchmark, DeepSWE. We'll see what adoption looks like, uh, and, and where enterprise spend goes. Uh, Arash Ferdowsi has some very interesting, uh, data from the Ramp Economics Lab you can go check out. He also has a new post that's very interesting that we can talk about in a second. But, uh, last model, Meta Muse Spark 1.3 did very well on benchmarks, scoring 75.4% higher than Gemini 3.8 Flash on DeepSWE, beating both Opus 5 and GPT-5.6 Soul. It didn't sweep the board. Opus still beats it on several professional work and computer use evaluations, but it got 62 on the intelligence index, which is only behind the newest Claude models. Uh, tons of stuff to think about and discuss here. So, um, the interesting post from Ferdowsi, and I don't know if we have it in the timeline, if we can pull it up, but he was saying that there's a lot of concentration in the enterprise, uh, AI revenues right now. Uh, OpenAI and Anthropic, 80% of their enterprise revenue comes from just 1% of the companies. And I was like, 1%? That seems crazy. And, and, and he notes that this is uncommon for software categories. Like, if you look at CRM, if you look at databases, if you look at all sorts of different software spend, typically you don't see as much concentration, you don't see 1% driving 80% of the spend. And I was wondering about this. And so I started looking up like, what, where else do we see this type of inequality, if you can call it that, this distribution, this power law. Power laws are everywhere, but where else does this exist? And you might go to hiring. Like, is AI a drop-in replacement for hiring? Is it going to be proportional to hiring? And in fact, 1%, the top 1% of biggest companies in America, they do hire a ton of people. The top 1% of American businesses employ 65% of the total workforce, uh, not 80%. But interestingly...
The concentration risk there, John, 65% of jobs are tied to just 1% of companies.
There is. Yeah, there is. And, and, and I mean, yeah, you definitely see that. Uh, although the top 1% companies tend to be pretty lindy, you're talking about...
No, no, I know. I'm joking.
Yeah. The government and whatnot, but, um, the interesting 1% 80% correlation comes from sales. So the top 1% of American companies by sales generate 80% of total revenue. And so there's this weird dynamic where I don't know exactly how correlated it is, how causal it is, but, uh, there is an interesting dynamic there where it feels like if you look at the total AI spend, it's around, uh, 150 billion a year, something like that. Uh, and then you look at total revenue for all US businesses. AI is roughly a quarter of a percent of total US business revenue, and it tracks fairly closely to the revenues of those individual firms. So you see that that 1% of the top businesses generate 80% of the revenue, they also spend 80%, they also generate 80% of the AI revenue. And so there's this interesting dynamic where because enterprise AI particularly, you're not going to be on the $20 plan, you're not going to be on the $200 plan, you're going to be consumption-based and you're going to look at it a lot more like a marketing line item that's proportional to your revenue potentially. That's at least one interpretation of this. Uh, uh, another, uh, fellow over at Ramp said that this is a Rorschach test for how you feel about AI. Either you look at this and you're like, it's great, or you look at this like, it's over. Um, but fun, fun, fun, uh, fun chart to dig into. Anything else on this? You guys read any of this?
Uh, let me tell you about Codex.
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Uh, our guest today we forgot to cover. Uh, Pablo Torre joining at 11:30. 11:30. Uh, to talk about the Clippers, uh, and Kawhi Leonard.
I mean, so these are people that go, they watch live streams and they clip them and they put them out on social media.
Yeah. Why I think that's what the team, why they named the team that.
Yeah. Yeah. Kind of an homage because there's a lot of clipping that happens in LA. TikTok clips, Instagram clips. So they call...
Yeah. This whole Ballmer Kawhi Leonard thing. Uh, you had an interesting pronunciation of Kawhi's, uh, name earlier because I don't think you'd ever heard of it.
Well, I was calling him, uh, Steve Bal. I, I, I dropped the R cuz I thought it was French.
Uh, and then we got a bunch of others. Somewhat of a lightning round. We have Mohit from Siphon. He's got a big funding round from Altimeter. We have Akshay from Pocket. Sold over 200,000 devices. Uh, we were talking to Jimmy yesterday. He was saying, "Why can't, uh, big companies do hardware while Pocket's doing it? They're making it work." Jimmy did say that he sold, he was like, "Oh, Meta sold 2 million pairs of glasses. I sold 2 million pairs of headphones in Brooklyn," which was a great line. Um, and a bunch of other great, uh, uh, teams joining.
And we'll cap it off with the CEO of Snowflake coming off a great quarter.
Yeah, stock is way, way up. Uh, very exciting. Let me tell you about MongoDB. What's the only thing faster than the AI market? Your business on MongoDB. Don't just build AI, own the data platform that powers it. So, uh, the other big story in the news, the open-source community is stronger than ever. We saw, uh, three, four, who knows, five closed-source releases. All the, all the big labs are duking it out. Meanwhile, Nvidia is going even bigger on open source with the 13 billion dollar acquisition for Hugging Face. Uh, all over the timeline. This was leaked a couple weeks ago, I feel like. Rumored. What are you laughing at?
No, just every single day I would see a headline about Nvidia Hugging Face and think, "Okay, now it's official."
They can talk about it. They can explain it. Uh, and there's a lot that makes sense. There's not too many questions. It's just a great outcome generally. But it's an interesting story because it's a true 10-year overnight success. Um, and it, and they're having fun with the acquisition price. Uh, Nvidia agreed to pay 12.93 billion for Hugging Face, which just happens to be the exact decimal code for the hugging face emoji, which of course is the icon used by the company. Uh, and then also if you take that number and you turn it into a color code, I think you get a green that sort of hints at Nvidia. So, they're having fun both ways. Like, ah, this was always in the plan. Uh, symbolism. Uh, and it's just funny to be having fun with a price this big. I remember the Instagram acquisition and the idea of a billion dollar outcome as being insane during the social media boom. And now, uh, we're seeing like you decacorn liquidity events every couple weeks. Uh, I'm of course thinking of OpenRouter and...
It's honestly an incredible time to be investing in AI. Seven years ago.
Yes. Yes. Best data plan.
Three to seven years ago was an amazing time to be investing in AI.
It was, um, and so obviously this is, this shouldn't come as that much of a surprise because Jensen has been the, probably the loudest voice on open source. He put out that open letter that everyone signed on to, uh, and, uh, he wants to maintain Nvidia's dominant position in the AI ecosystem, uh, both selling chips to closed-source labs, uh, who might wind up making their own chips as well. And there's a whole tug of war there, but for open-source, uh, AI development, uh, he wants to be the place where developers and companies go to pick their models and then hopefully rack them on GP, on Nvidia GPUs. Uh, the simple distillation is just Hugging Face is the GitHub of AI. It's a little more complicated than, than the Microsoft GitHub deal. Um, but it still makes a lot of sense. So, uh, Hugging Face doesn't own the smartest models. They don't even try to build them. And there's some interesting financial dynamics there about how capital efficient they were because of that decision. Um, but they created this nexus for people to upload, discover, test, modify models. And the numbers are good. Uh, they have over 18 million developers, 200,000 companies using the product, 3 million models and over half a million datasets. And so, uh, they have certainly created this, this vortex of activity that's really valuable. Uh, how much, how strong is the network effect? It, it, it's, it's, you know, it's certainly cooking and it's certainly driving a lot of value here. So, um, the interesting thing about Hugging Face is that it did not start as an AI GitHub for AI. It started as a completely different idea. The founder worked at a French computer vision startup called Moodstocks that was eventually acquired by Google, and in 2016 he teamed up with two co-founders. One who was a mathematician and the other one who was a scientist who had worked in patent law apparently, uh, and they started building an AI that could basically talk about everything. So, this was post-Siri, post-Alexa, but instead of focusing on like, tell me the weather and be, be an assistant, uh, you know, set a timer, he wanted just to be able to talk to you and...
Still not solved, by the way.
Yeah. Yeah. Yeah. So, yes, it's pretty good at setting timers. Um, but so the goal was to build something like a Tamagotchi, something very cute. Hence the hugging face icon. Uh, a funny, emotional digital friend targeted at teenagers. Uh, the app let their name, let users name the bot, text it, send selfies, trade emojis. Uh, it was explicitly marketed as an AI best friend, um, for bored teenagers, and they scaled it. I think this is pretty significant. It was doing a million messages a day. They had more than 100 million messages in total by 2018. That seems pretty significant. That doesn't seem like, you know, you're languishing in the app store with no downloads. Because how many messages a day can a bored teenager possibly put up with a, with an AI agent? Even if it's like a thousand, you still have, I guess, a thousand users, power users. I don't know, probably the average user is doing 20 messages a day. So, you're, you're seeing pretty significant adoption. Um, and so they were able to raise a series of financing rounds. The big one that grabbed headlines was Kevin Durant, uh, was in the $1.2, $2 million. I think it was a pre-seed round. Uh, Betaworks and SV Angel were also in there. That was 2017. Then they did a proper $4 million round, uh, led by Ronny Conway's A Capital in 2018. Uh, the company had raised money and the technology worked well enough to feel sort of magical, but it was still 2018. This is pre-GPT-3. Um, and it didn't become a durable consumer business. So in 2018, Google released BERT, which was sort of the first language model, very primitive, but, uh, people were really excited about it, but it wasn't delivered just as weights that you could download on the internet. It was, it was delivered as a paper from Google. Um, and, uh, and the paper was implemented in Google's TensorFlow framework, and people like PyTorch. So the Hugging Face team converted BERT from, uh, from TensorFlow to PyTorch and released the conversion for free. And so developers really liked that, and that became sort of like the initial go-to-market flywheel for developer adoption. Uh, and eventually they added more and more models, eventually thousands. Now I think they have millions of models, which is sort of crazy, but when you think about all the forks and fine-tunes, it makes sense. Uh, eventually the team stopped trying to build this one application and focused on building tools, became the picks and shovels trade. So instead of trying to pick a winner, you just host every model. They became the Switzerland of AI to some degree. Um, and the, and so the flywheel started compounding, more models, more developers, more model creators, more companies. Uh, and it was the same basic network effect as, uh, GitHub. The, you know, GitHub was the default home for open-source software. Hugging Face very quickly became the default home for AI models. Over time, Hugging Face grew from a code library to a place where developers could publish models, version them, attach datasets, uh, discuss changes, and they even allowed them to build, uh, demos. Hugging Face eventually launched a Spaces product where you could demo these, uh, the different models. Um, companies could maintain private repositories. Same GitHub strategy. Um, so 2019 Lux comes in with $15 million. Then, then yeah, Lux got in early, Series A, 15 mil. Uh, they also came back for the Series C in 2022. That was 100 million at a $2 billion valuation. Sequoia and Coatue were in that round. There was also a Series B in 2021. Uh, that was 40 mil. And then the big step up was in August of 2023. Hugging Face raised $235 million at a $4.5 billion valuation. And it's a murderer's row of potential acquirers. You got Salesforce, Google, Amazon, Nvidia, AMD, Intel, Qualcomm, and IBM. So you're, you know, it's not like they were doing a road show to sell the company, but it's very much like, we want to be the Switzerland of AI. We want good partnerships with everything. We're going to be chip agnostic. So yes, we have Nvidia on our cap table, but we also have AMD and Intel and Qualcomm. So, you know, you, you can count on Hugging Face as being like an independent place. We're not, we're not purely Nvidia backed, which is maybe one of the things that they'll have to deal with now, but they're not purely Nvidia backed at that time. So, it's very much like, oh yeah, we'll host a model that runs well on AMD, we'll host a model that runs well on Nvidia, we'll host models that are from Google, from Amazon, etc. Uh, and so, uh, it looked like this, like peace treaty moment from the major AI infrastructure companies. You get everyone around the table, everyone's aligned with the mission. Uh, and Hugging Face becomes this neutral territory where, uh, it supported competing clouds, chips, frameworks, models. No simple, no single company could control the platform. And so even though they did a number of rounds, Hugging Face, I'm going to say only raised under 400 million, which is a lot of money, but not at a 12 billion outcome. Uh, and it's pretty, pretty small considering the outcome, and it was very capital efficient because they weren't actually buying chips or serving models directly. Uh, and they had this flywheel that sort of spurred growth through the network effect naturally. So not a lot of cost in the business. They became profitable in 2025. Still had half the money that they raised. So Nvidia came in to offer 500 million late 2025 at a 7 billion valuation, but they turned it down.
Turned it down because we said, "Hey, if we're going to go deeper with one particular area, it's got to be the whole shebang." And so, uh, that's what, what wound up happening. So, pretty high revenue multiple.
My question, my question is, um, I wonder what Jensen's vision for Hugging Face is. Uh, they, they do offer model routing.
Uh, and, and you know, they, they rank a bunch of inference providers. Is this something that could we see Hugging Face and OpenRouter and Ramp's router competing more and more?
Um, sure. I think it's two things. I think, I think one is if like closed source is already its own business line, sell chips to the labs, but the labs are building ASICS. They're doing a lot of stuff and there's this whole back and forth tug-of-war there. But on the flip side, you have open source which is continuing to grow. And if you can be sort of the front door to that and then say, hey, you're, you're, you found your best model, your framework on Hugging Face and now you're ready to go and buy chips or buy inference or buy compute and Nvidia's right there. That is a very logical flow and anything that they can do to make open source powerful, exciting, a place where, where you can build a career, have a great outcome, I think that's beneficial to, uh, to Nvidia because a lot of people will see this and say, yeah, like you can go and build a great company and have a fantastic outcome. I mean, the retention packages are apparently a billion dollars for a pretty small team. I think it's in the hundreds still. And so, uh, if you're, if, if Nvidia is just trying to send a massive signal to the world that you can make it in the open-source world, that's a really good signal to send. And it feels like it's landing loud and clear, especially today. Um, what else is on your mind regarding Hugging Face and Nvidia? And while you think about it, I'm going to tell everyone about Console. Console builds AI agents that automates 70% of IT, HR, and finance support, giving employees instant resolution for access requests and password resets. What do we got on the timeline?
Uh, people are still waiting for an official launch from, uh, of Astra. Lisan Algib is sharing some Astra benchmarks. ARC-AGI-3, 98.6. He had, uh, they had previously said, "Are you ready for a nuke to hit ARC-AGI-3?"
Uh, so almost fully saturated. FrontierMath Tier 4 v2 gets a 97.6. DeepSWE 74.1. ExploitBench also, uh, saturated at 100%.
Uh, seems pretty good, but still no official announcement.
Okay. Well, we will keep monitoring it. Let's go through what else is in the timeline. What is John Palmer saying these days? He says, "I actually think Snapchat for work might be a good idea in today's big companies. Work platforms, work communication platforms have always followed what teenagers were doing 10 years ago. I did use IRC when I was a teenager." Unst... Tyler has to look it up. He doesn't know what internet relay chat is.
I, for what it's worth, I didn't use IRC either.
No. What did you use? AOL.
You didn't use AIM. AOL Instant Messenger. Wow.
What was your first communication platform on the internet?
I remember, I remember being inundated with emails. I remember there was like a summer, there was a summer.
He's laughing at me cuz I had a Hotmail. Wow.
Well, I, I just, I remember spending a summer as like, not even a teenager yet, just being super stressed about my inbox cuz like every kid had just started using email.
And so they were just sending these super long emails and I would, and I would be think, I'd just be like playing outside in the grass and thinking, man, I got, I got to check my email.
Do you think there's anything actually to this? It sounds like he's being serious. In the age of AI slop, the most efficient form of communication is just short videos of yourself speaking. What do you think?
I would love to use Snapchat for work.
So if we, if we said, "Hey, as, as a team, we're going to communicate through short selfie videos."
Yeah. With the filters. With the, you gotta have the dog filter or whatever, the hot dog filter, whatever those were.
Uh, he says he's serious. A two-minute demo video. Yeah, I guess, I guess in terms of actually just taking a video of your screen showing people what, what, what, what you're working on. You know, there's a lot of different things you can do. Uh, there's a town that's for sale. 6 million bucks gets you an entire city in California, no less. Not a place to live.
You know what I'm thinking?
Data center developers have been having some issues, right? Towns, they, they, they try to move into a town, start building the data center. The town says absolutely not. Well, here you go. Buy the whole town.
Who's going to tell you no if you are the king of the castle?
The town next door. Maybe they might be annoyed. I don't know. Anyway,
King in the castle. King of the castle.
There's a, there's a video here on Good Morning America breaking down the details. An entire town went on sale for... 2.6 is TBPN city. I did get excited about the potential of just welcome to TBPN California, but yeah, I'm not super eager to move.
This has Riley Wall's project written all over it.
He's got to do... Who, who bought the street by the way?
Notion. The Notion way. I think that was what, what it's called. So Notion, California. Maybe it's right there.
Uh, it's official. Hot bot summer is over. Super Grok is saying goodbye to companions. I remember we were debating, you know, there's obviously a lot of people that had ethical concerns about, about AI romantic companions, but we were more discussing just like, is there actually a business here once you break the seal of like, okay, I'm, we're, we're doing it. He did it. Um, would it actually be successful? Because Replika has seemed to get to scale. There's been other products that have played in this world and, and seemingly reached adoption and scale, but, uh, it's very, I, I, this was, this is the same thing as the Sora discourse where everyone was caught up in Sora is, is either going to be the most powerful thing ever and we're not going to be able to stop watching it or it's going to be good and so fun and, and it's going to be amazing and dominant. But no one was counting just like, oh, it might just go away in six months. And is the same thing here?
I don't know. I, I think I was saying it was going to go away just because I thought it was going to be a tool.
Yeah. And I think, I think we benchmarked the market for this. Like if you, if you look at other romantic stuff... first said, "Okay, I'm going all in on, on adult entertainment." I did think it was a potential path for, for Grok to get into the single digit billions. I probably overestimated, overestimated, uh, the market there.
Um, but it felt like, it felt like a, a, a, one of the plays that he had to get back in the game at the time.
Um, but again, this was last year.
And back then, if you could get into the single digit billions, you were doing pretty well. And then the game obviously, you know, really shifted to...
Yeah, it makes sense to wind it down, focus on enterprise software. That was what was in the SpaceX S-1, was the, the, what, what was it, $13 trillion market he was going after, something like that. It was in the, it, it was a shocking, shocking number, maybe 20 trillion or something.
Absolutely huge, huge numbers and it makes sense. There's a lot of value in the enterprise, much less in this controversial topic. Uh, well, fish.audio ran a billboard campaign. We love out of home. This one sort of confused people. Uh, Heshi Brody says, "$100 for anyone that can explain what this company does without looking it up." This is on the New York City subway today and we'll read it to you and you can take a guess. Uh, fish.audio says, "We put voice AI on a silent sign. You see the problem." Is this one of those jokes though? Because...
I think it's a joke. I think this is an 11 Labs competitor. We even know. But, but is this a real ad from a real company or is this a prankster making fun of tech ads? Because there was that prankster who put up a bunch of, uh, billboards, like fake billboards. Remember like...
It really makes you think. It really makes you think. Uh, it made me go to the website.
Okay. They make, uh, text to speech, speech to text, audio separation, voice changers, translation, and they partner with global innovators, John. They're working with, uh, HeyGen.
A bunch of games companies. It looks like...
Clout Kitchen. You ever heard of Clout Kitchen, John?
You ever been in the kitchen cooking clout?
Okay. So, isn't it like they put voice AI on a silent sign? You can't, like if you have a billboard, you can't listen to it. But their product is audio.
You can't listen to the billboard. That's the problem.
I guess I would expect...
Your explanation is a problem.
I, I would expect the application.
More importantly, we have our first take a picture and it reads it to you. That's what I would expect.
Anyway, uh, we do have our next guest in the waiting room. Let's bring in Pablo Torre from Pablo Torre Finds Out. He's a host, investigative journalist, and he's on an absolute tear. What are you doing? How you doing, Pablo?
It's an honor to have you. I was telling John before the show started, we podcast for a living. I'm not a big, uh, I don't, I don't follow very many sports very much, but every time there's a sports story, I go find your content. And when I watch your content, you make me feel like an amateur because you're just so good at what you do. So good at yapping, but then you're also, also an elite investigative journalist. And we wanted to take a victory lap with you. Feels like a...
My show is designed... Thank you. A, B, my show is designed for people who don't care about sports at all to find it even mildly entertaining and interesting. And this is a story that has immersed me in the world of securities law and the funneling of money and billionaires and especially one particular billionaire who used to run a certain company called Microsoft. And so all of this I think is actually in your guys' wheelhouse. So happy to be on with you.
Yeah. And I remember, I remember I watched some of your content around a year ago when you were originally breaking this story and then I'm surprised that the story like at least went away out of the, out of the public eye for some time. I'm sure you were still following it, but take us maybe from back a little bit to first kind of uncovering this and then we'll get all the way to the present.
Yeah. So, this was an investigation that started with a tip. And the tip was there's a weird company out in LA called Aspiration. It was a tree planting startup, aka a carbon credits company. The ESG thing, as you guys may recall, during the pandemic, was a real thing. We're going to be good guys, right? Everyone's going to be a good guy now. And, uh, endorsers...
Hey, hey, hey. I love, I love trees. I love planting trees, too. I love what they do to carbon and oxygen reportedly.
Um, so Aspiration has all these endorsers that are public. There's Robert Downey Jr., there's Leonardo DiCaprio, there's Drake,
there's Cindy Crawford, people who grew up in the 90s deal.
Toronto figures into the story in lots of ways, it turns out. But the point is that there are all these A-list stars, Orlando Bloom, I didn't even mention, all these A-list stars that this Good Guy company is paying to tell everybody about what they are.
And what I get a tip on is, hey, you should look into this company. It's kind of weird. Um, they just signed a deal, $300 million to be the jersey patch sponsor of Los Angeles Clippers, and, uh, you know, they have another endorser that you'd be interested in.
And when I look into this, it's not immediately obvious like what they're talking about, but when this company goes bankrupt because, and this is going to be in your wheelhouse again, they were going to go public via SPAC.
What a time, right? What a time. SPACs, ESG, we're all going to get rich being good guys and no one really needs to ask many questions. Just trust us, it's going to be fine.
And what turns out is, uh, this company is co-founded by two people, two big Dem donors, plastic good guys, went to Harvard. I mean, I resemble the remark. I want to say that like this has been also awkward for me. Steve Ballmer, Harvard, all these guys, all of this, right? Pedigree.
The thing that's interesting is that when you dig in to how this company fell apart and they go into bankruptcy, you of course get to examine some public filings, and one of their big creditors was a company called KL2 Aspire LLC.
And if you're a basketball fan who's aware of the Clippers, you may realize that KL...
sounds like Kawhi Leonard, 2 sounds like his jersey number. KL2 Aspire sounds like a vehicle you've invented to accept money from Aspiration.
And he was owed $7 million outstanding. And the weird part was that this dude had no public record of being associated with Aspiration personally at all.
And so when you dig in and you begin to ask questions of people who used to work at a company that has now gone into bankruptcy, in which the co-founder Joe Sandberg is now, by the way, serving 14 years in federal prison for fraud, you get people who are interested in explaining how crazy their life has been.
And what they say and what they provide in the tonnage of all the reporting I did for months, seven months before we came out with part one of the series, one year ago today, was documentation that attested to the fact that Kawhi Leonard was paid, according to this agreement, a total of $48 million, 20 in stock, 28 in cash, to do nothing.
For a deal that never got announced. And the question was why?
Yeah. And so you follow the threads and...
You get to, oh wait, there's a massive salary cap circumvention scheme in which the richest owner in American sports, Steve Ballmer, is trying to use all of his wealth in ways he's not allowed to, to get money to a guy that he needed to take away from the Lakers and the Toronto Raptors in order to make his dream of owning a professional basketball team exactly the dream that he imagined.
So how strict are these rules? Because I can imagine that's a funny way.
Yeah, we covered the whole AI talent wars last summer every single day. It was crazy, and we kept coming back to this idea. Part of why the talent wars worked in many ways is there's no salary cap, right? So Zuck could just spend exactly as much money as the talent would accept. But in this case, the rules are actual laws.
Yeah, I guess I just mean like if I'm a player and I know that the owner runs a hedge fund and I see the benefit of putting some of the money that I earn directly with their hedge fund, it gets me access, or I know that the owner of the team is friends with the CEO of Nike and I might be able to get a shoe deal. Like there's some level of just doing business above board that's probably acceptable, but is this a blurry line? Like how defined is this? Like how clear is it to you?
So two things to know. One is that this is a cardinal rule of sports in which you raise a very astute point. If you are LeBron James, it's kind of insane. No disrespect intended to the latest person who got bidded up between Meta and OpenAI and Anthropic or whatever. No disrespect. LeBron James is probably thinking to himself, why can't I make $100 million a year? Yeah, this salary is capped. And if you have problems with that, I get it. Sports is a fun mix of socialism and capitalism that is convenient, typically for the owners of these teams who are wealthier every time you check the news.
So point A, well taken. Point B though is that it's a cardinal rule of sports, meaning that sports is one of the few places where your spending power is not automatically supposed to let you just buy whatever you want. Right? This is how big markets and small markets ostensibly get to some level of parity. This is how, and this is debatable, of course, we're getting into more philosophy than I expected, but it's a fair point. It gets into the question of what's actually moral and not.
What Steve Ballmer did, given that blurriness around the ethics of it, was violate and really, I would say, blow past any semblance of plausible deniability that, hold on, I thought this was something that we could do here. And I say that because according to the NBA's investigation and my own, this was not merely a scheme that he ran to funnel money with one company, Aspiration. He did it with four.
He did it with the scoreboard manufacturer, multi-million dollar deal for Kawhi Leonard to do nothing. He did it with the insurance company, LockedIn Insurance, which was the insurance company on the buildout of the Intuit Dome. He apparently did nothing for that. And he did it with, and this is a fun one, Boingo Wireless, which you may know as the wireless provider of the Los Angeles Clippers. And the thing you say to yourself, do I really need to pay for Boingo? Yeah, that's my personal review of the product.
So when your original story broke, you got a bunch of pushback, even from a bunch of people that are pretty tapped in and knowledgeable. And some of that pushback was just that there's no way that Ballmer would be this dumb, right? So this story couldn't possibly be true because who would ever risk it all in this way. Is that somewhat accurate?
I think that's even the most generous defense. I think there are a lot of people who are just being told by the Clippers and Ballmer's crisis PR handlers, this weird podcaster is clout chasing. None of this makes sense. Steve would never do this. He's Steve Ballmer.
Yeah, the less surprising version though, which you just articulated, is a common one, which is you can't be this dumb.
Yeah. And I dare say that one of the things you learn when you investigate financial impropriety in our great country is that that is something that you should never assume. Sure. There are many phenomenally successful people who, because they are desperate to get the thing they can't just buy, do things that they think will never get found out. And the problem in this case, across these four companies and across these employees and across my reporting, is that he trusted people that he should not have trusted, and also he maybe shouldn't have tried to do it in the first place.
Isn't there one weird trick that would have made this all work? Which is just Ballmer goes to Boingo Wireless and says, 'Yeah, we got this deal. It's expensive, but you will get some Instagram posts.' And then Leonard actually follows through on some of the promotions and it would have been enough top market for CPM, like it could work. Yeah. If he had actually carried out the endorsements, would that have been enough or is that still crossing the line?
So, I've debated on my show literally Mark Cuban about this whole story before it became obvious what this was. And I appreciate the apology he gave me on Twitter yesterday, genuinely. Cool. But there's a Shark Tank episode we could do just like pitching ideas for how to circumvent the salary cap that would have worked. Yeah. And I think one of them, by the way, just to play that game briefly, it's like telling Kawhi Leonard about crypto. Yeah. There are untraceable flows of money that I am told are reliable at this point in the calendar that you could use. Right?
But what they did was actually almost too clever by half. What they really did was they created fake jobs for Kawhi Leonard and fake consulting agreements, consulting fees for the companies. So they were trying to create separation, okay, a familiar term in the investigation of financial propriety, but they're trying to separate where the money was going from A to B to C. The problem was that everybody in the course of doing it, people they trusted, left a trail of paper as well as testimony, as well as a lack of rational explanation as to why this existed if you never were to announce the deals. And Kawhi, and this is the great comedy that is sports in which salaries are capped, but egos are not. Kawhi Leonard said to everybody, 'I'm not doing a single thing for these off-the-books payments. I am not doing work for them, but I want them.' And Steve Ballmer said, 'Got you. We'll make that work.' And because these deals could not be explained as endorsements because he literally never endorsed them, it became this comedy of errors.
That's very, very odd. All right, let's get to the punishment. What's been your reaction to Kawhi got a $700,000 fine? Doesn't feel very significant, at least, you know, compared to the actual payments and what was received. And then you have a one-year ban for Ballmer. But what was your reaction to the verdict from the NBA?
Yeah. This was the biggest punishment for an owner in the history of, I think, American professional sports. And the NBA took five first-round picks, which is the most you could imagine. They took $30 million, which is a rounding error, of course, for Ballmer. They made him pay the $50 million legal fee to Wachtell, the NBA's outside counsel, which is also a rounding error, but still pretty annoying, I would imagine. But the real thing that I thought was meaningful was that they banned Steve Ballmer from his own building for a year. He loves basketball. He sits courtside. He measured literally the toilets at the Intuit Dome when he was designing the whole building. He was a micromanager who knew everything about every piece of the building. And they banned him from being inside his own building, which he funded for $2 billion privately to his credit. And they also banned his president of business for a year. And they banned his GM, his president of basketball, for six months. And so Kawhi got effectively a slap on the wrist. And that is wild on the merits.
The reason they did it briefly is because when Ballmer now is rattling his saber, because he is the former CEO of Microsoft who, when presented with antitrust findings by the literal federal government, also fought, right, this is unsurprising if you know the trajectory of his life. What he has threatened is litigation, and what he has not been able to pursue is arbitration, which is interesting because arbitration, briefly, in the world of sports court, which is another TV show we should pilot together. In sports court, you have an arbitrator, assistant arbitrator, but that is an arrangement between the player, Kawhi Leonard, and his union as well as the league. And when Kawhi Leonard got a slap on the wrist, only $700,000, no suspension, no voiding of the contract, no nothing, he agreed to a settlement that was quite favorable. And the question was why? Well, Kawhi Leonard's settlement meant that the arbitration option was legally removed. So now they boxed in Ballmer, which is again no small thing. My reaction was, it's no small thing to be at war with a guy with $145 billion depending on Microsoft stock and to say you got one move and it's to enter yet more discovery when you know he doesn't want to.
It sounds like a nightmare situation for Ballmer at this point to get more of the details out. Like he kind of... there's more. So your read on it is he just has to basically accept the consequences and, you know, get to watch as a fan for the next year. But how much does this set back the Clippers? Like how impactful, you know, in many ways like he tried to cheat his way, you know, a couple steps forward, but in the process of that set the team back. Like basically took the team out of probably contention for I want to say a decade. Like what player would want to go to this organization now knowing that they're not going to get any first-round picks for the next five years? Like it just feels like a really tough situation.
The next Clippers first-rounder that they will be able to select hasn't even sniffed puberty yet. Like we're just in a timeline that is a nuclear winter kind of feeling if you're a Clipper fan. But I want to say that at a certain point perhaps things get so bad that sort of things almost need to reset. And so actually the thing I'm wondering aloud with you guys is as we contemplate what is Ballmer going to do next? He has now threatened personally with litigation Adam Silver by name in a letter through his lawyers. He is signaling it is wartime and we just gave you some of the stakes around what that would entail practically. But historically, if you're going to go to war with your sport and with the commissioner and with other owners, by the way, that's the sort of backstage politics of this. Adam doesn't do this as a crusade. He does this because he's read the room of other billionaires who own these 29 other teams. If you're going to go to war with the other 29 ownership groups and the commissioner and the league and journalism and everything, typically it stops being as fun for you. Typically. And so, does Steve Ballmer even want to consider perhaps selling and taking a punishment that is a humiliation on one level, but also, you know what the Lakers just went for, $12.5 billion. What could you make on the back end if money was a thing you cared about?
Yeah. What does this do to the value? Like, there's no way you could value the Clippers at least within 10% of the Lakers, right?
No. Doing back-of-the-envelope math, they're not getting eight figures. They're not getting ten figures. What I think is interesting though is they're going to make more than people I think are prepared to intuit it based on how horrific this franchise has been. We're just at a place in sports where the scarcity is so clear that these are detached valuations from revenue. You know, again, there are a couple places in this world where that is true. You guys cover a lot of them. Sports though is on its own crazy ride that is getting divorced from the reality of things.
I don't know. I think sports and the private markets are pretty near each other, but I take your point.
No. And by the way, that's the story of the Lakers and Mark Walter, which we were also investigating. My point being that they're not going to get 12 and a half, they're not going to get 10. But for Ballmer, it's a trade-off between what do you really want? You have all of the money. What do you want? Do you want to fight? Do you want to surrender? Do you want to walk away with something like your, you know, ego or dignity? Whatever. I don't want to be too over the top here, but like he has a calculation that is not a normal calculation to make because right now it's signaling that he's going to fight.
Yeah. Fighting seems like going to war with you seems pretty rough. Do you feel like this has probably been happening? Do you think it's possible that Ballmer felt confident in doing something like this because it was happening at a larger scale? And if you actually look at a bunch of other teams, it's really much more widespread. And if you start looking at a bunch of these endorsement deals, there's definitely a better way to go about it. You said you could have a whole show about getting around the salary cap, and I just have to imagine there's so much money involved, there's so much ego. If you own a team, you want to compete, you want to win. And I would guess that there's a bunch of other owners and GMs and things like that that are kind of a little bit nervous now because they may have done something similar or even at a smaller scale.
I think two things are true. One is by degree lots of other examples of salary cap circumvention, funneling money to players, have happened, will happen, are happening. But the other thing that's true is that in terms of the scale and ambition and the paper trail and the sort of almost just like subplots, nothing is quite like a story in which a guy who doesn't want to do anything, who has zero discernible endorsement value even when he does something, has leverage over the richest owner in sports, who is willing to spare no expense almost literally to funnel money through four different companies, one of whom, by the way, is a public company, D-TEC Electronics, that is now acknowledged in yesterday's earnings call that their CFO, according to him, is now dealing with an SEC investigation. So there's also a civil suit happening in LA court against Steve Ballmer personally by 11 Aspiration investors about fraud. My point is there are lots of other examples about how to circumvent the cap that are I'm sure getting no attention and maybe we'll get to some of them. But in terms of what this one is, the reason it's the biggest punishment is because they found stuff that is singular in terms of all of the webs that it entails.
But now the person that is most incentivized to uncover all these other salary cap circumvention potential deals that have been happening is actually Steve Ballmer. Because you imagine in his war, he's got his back against the wall. He's sitting there thinking the only thing that I could possibly do to kind of clear my reputation is make it come out that... You think he's going to start feeding Pablo tips? Be your number one tipster.
I would gladly welcome back-checkable information from any source. I also welcome the idea that maybe the biggest consequence of my reporting is that Steve Ballmer becomes himself a podcaster, and that would be something that I welcome as well.
That'd be fantastic. Final job once you have everything. Well, he's got a lot to learn. It's only you and the mic.
