From drug store closures to video game mega-deals to overpriced bowling, the role of private equity can often be found lurking behind the headlines. In this month’s edition of BUYOUTS, let’s take a look at just a few of the most important stories about private equity’s excesses over the past few weeks – and the efforts to rein in the industry.

Massive Video Game Buyout Deal Sparks Protest

The Players Alliance coalition recently organized a protest outside the headquarters of EA, the video gaming giant that is being acquired by Saudi Arabia’s Public Investment Fund and Silver Lake and Affinity Partners – the latter being the investment firm headed by Donald Trump’s son-in-law Jared Kushner.

The LA Times noted that the coalition “believe the deal will likely lead to layoffs and other major cuts to the company, including replacing employees with AI technologies.” They also argue that EA’s debt will ultimately be paid by consumers.

CEPR’s Daniel Stone has written several pieces about this deal, which represents a striking combination of private equity greed and political corruption. As he wrote:   

The deal marks the largest leveraged buyout in history, and while it will have adverse ramifications for gamers and the industry, the details of the acquisition reveal larger concerns around how President Trump’s son-in-law is monetizing his political connections while selling domestic industries to foreign interests.

Stone goes on to explain Kushner’s role as the bridge between the Saudi fund and US corporations, and that Kushner is seen as “providing political cover and regulatory protection in exchange for guaranteed fees.” It is encouraging to see the opposition to the deal is increasing.

New Research: Carried Interest Loophole Costs Even More Than We Thought

Yale’s Budget Lab released a new report showing that closing the carried interest loophole would raise nearly $90 billion over a decade – a total that the New York Times noted was “significantly higher’ than other estimates. 

The loophole is especially valuable to private equity managers, whose earnings from the sale of companies in their portfolios are taxed at the lower capital gains rate instead of being treated as normal income. The study found that more income than expected has been treated as capital gains.

Closing this loophole has become a political priority at various times – in 2014 Eileen Appelbaum wrote about one effort to rein it in (Time to Close Private Equity’s ‘Carried Interest’ Loophole), and ten years later when CEPR supported the Carried Interest Fairness Act:

“The Obama administration tried to kill the carried interest loophole. So did the Trump administration. But lobbyists for private equity and hedge fund managers defeated those efforts ….The time seems right to finally end this special break for investment managers. Americans of all political stripes are tired of unfair rules that rig the economy to benefit the rich and leave the rest of us carrying the bag.”

Walgreens Following Familiar PE Playbook

Last summer, the sale of the Walgreens pharmacy chain to private equity giant Sycamore was finalized. Recent reporting has noted some of the impacts. Bloomberg notes that Sycamore intends to “double the pharmacy chain’s profitability over the next several years.” How can they achieve that goal? “Sycamore has been reducing costs at Walgreens by cutting staff and taking away paid holidays for some employees, while working to boost store sales by adding products, like electronic cigarettes.”

Newsweek noted that hundreds of layoffs are in the works at various locations, while Crain’s Chicago Business reports that store closures on the South Side of the city “has led to local council members and community advocates accusing the drugstore chain of abandoning neighborhoods that can least afford to lose healthcare access.” As the Private Equity Stakeholder Project observed, Sycamore’s strategy appears to be similar to its takeover of the Staples office supply chain, which saw many stores close after the deal while investors reaped the benefits.

States Take The Lead on Combatting PE Abuses in Health Care

The Wall Street Journal recently reported that new state laws intended to rein in private equity abuses in the health care system are starting to have real impact. The piece singles out actions in California and Oregon, and notes that a bill in Vermont has advanced as well. As The Journal explains, “The idea of these bills is to revive and strengthen longstanding bans on corporate medicine — many enacted in the early 20th century — that are currently on the books in about 30 states.” 

CEPR was on the case last fall, when Eileen Appelbaum explained that what was happening in California and Oregon as part of a revolt against private equity: 

Research shows that private equity acquisitions raise costs — including costs of doctors’ office visits and procedures — without improvements in quality and, in some cases, deterioration in patient care. Bankruptcies of PE-owned health organizations interfere with patient care and may devastate communities.

As her piece noted, “in the absence of movement at the federal level, states are showing that it is possible to address corporate greed in healthcare.” Thankfully, things continue to move in that direction.

Graham Platner’s Anti-PE Advertisement

Populist Maine Senate candidate Graham Platner wanted to send a message about private equity – particularly the private equity firm that purchased a stake in the Boston Red Sox. What better place to deliver that message than a commercial airing during a Red Sox game, on a channel owned by the team?  

In the ad, Platner says, “Private equity is destroying our favorite baseball team, stripping them for parts. Private equity is buying up our homes, our sports, and our lives. I will reverse the private equity curse.” 

That’s not likely a message the team’s ownership enjoyed seeing during a game. And according to the Platner campaign, the station pulled the commercial from the broadcast. The station claimed it did so because it included “unauthorized use of third-party intellectual property.” In doing so, they created a story that has been covered by news outlets around the world, drawing more attention to some of the core criticisms of the private equity industry. 

Did Private Equity Ruin Bowling?

 Over the past decade, the chain Bowlero (recently rebranded as Lucky Strike Entertainment) has gobbled up bowling centers across the country. The Lever reports that some bowlers have had enough: A class action lawsuit filed recently in Washington state accuses the chain of violating federal antitrust law as well as consumer protection laws in several of the states in which it operates. 

The suit lays out the case that Bowlero, whose quick expansion was fueled by private equity investors, has significantly jacked up costs, thanks in part to the use of dynamic pricing schemes. Bowlers in the suit report that family trips to the local Bowlero-owned establishments can run in the hundreds of dollars, while routine maintenance and quality suffer.

One company executive is quoted as saying, “This industry is fragmented and ripe for roll-ups.” They have certainly cornered the market. And while that has made investors and shareholders happy, evidently many bowlers are less enthusiastic.