PARTY LIKE IT’S PERIODIC NUMBER 2

American retail chain Party City announced this past week that they were planning to close 45 stores due to “a global helium shortage.” This is actually a fairly interesting story, for two reasons: firstly, the global helium shortage itself is interesting, and second, it’s interesting because the global helium shortage almost certainly has nothing whatsoever to do with Party City’s decision to close some stores. Come with me on a journey!

Okay, so first: the global helium shortage. Yes, this is a thing (the general estimates among experts is that we’ll exhaust natural reserves on the planet by 2040 or so) and the reason is very simple: helium is lighter and less dense than air, and in fact is light enough that Earth’s gravity doesn’t bind much of it within the atmosphere. If you release a kilogram of helium into the atmosphere, something like 95% of it will end up bleeding out of the atmosphere into space. As equally big a problem is that helium is - at this point in human history - almost wholly a non-renewable resource. We mine it (because practically all of Earth’s helium supply is underground, captured within rocks) and when the mines run out that is more or less it for helium. We could theoretically capture the helium that is created in nuclear reactions from fission reactors, but there’s very little of it and it would be insanely difficult. We could also theoretically manufacture helium as a byproduct of fusion reactors, assuming humanity ever manages to invent a working and stable fusion reactor, which we have been twenty years away from doing for, oh, sixty years now?

Of course, in order for there to be a shortage there needs to be healthy demand in addition to dropping supply, and yes, we need helium, because it’s lighter than air and there aren’t a lot of gases that are lighter than air in the first place, and there’s only five others that are light enough to provide the buoyancy necessary to lift a balloon or a blimp or what have you, and of those, three are flammable or explosively flammable (hydrogen, methane and acetylene), one is toxic and corrosive (ammonia) and one is ridiculously expensive (neon). Helium is what we have always used because A) up until recently it has been cheap and B) it does not explode or poison anybody. (It does tend to slowly leak from most containers, but this has usually been a minor drawback considering the lack of exploding and poisoning.)

Besides, we need helium for a lot more than just balloons, be they party or weather - liquid helium is what we use to supercool the magnets in MRI scanners, for example, and in other manufacturing technologies that require massive cooling to work (LCD displays, for example), and there’s no substitute for it because helium has the lowest boiling point of any element (and thus liquid helium is basically the coldest liquid available to us).

So, there really is a global helium shortage! And did Party City really close stores because of it? Of course they didn’t! And the reason I am quite sure of this is that Party City has in fact already announced it has contracted with new suppliers which will start providing helium to the chain in about six months, so people can continue to waste the world’s increasingly precious helium supply on GOOD LUCK AT YOUR NEW JOB, WAYNE polyurethane glitter balloons like we’ve been doing all this time. But, beyond that, there are other reasons.

This is the point where we need to talk about private equity. Over the past twenty years or so a large number of retail chains have gone bankrupt, and the usual discussion is about the Internet and lowered revenues and that sort of thing but really, for large chains, the answer is usually “private equity came in and fucked the place.”

Toys R Us, which went bankrupt last year, is an excellent example of this. See, Toys R Us’ business model was actually pretty good, because competition from Amazon is a thing but it turns out parents actually like to look at toys in person before they buy them for their kids (and kids love Toys R Us because it’s a showroom for toys, so it essentially markets itself), and although the revenues weren’t as good as they were in earlier pre-Internet times they were still pretty good and certainly enough to sustain a business. However, in 2005 a trio of private equity firms (including Bain Capital, the firm Mitt Romney famously worked at) bought Toys R Us for $6.6 billion, borrowing $5.3 billion from lenders in order to finance the purchase. And then, after buying Toys R Us, they had Toys R Us assume the debt obligations their equity firm had taken on - meaning that the equity firms were now completely clear of debt and it was all concentrated in the company.

They then reorganized how the company paid dividends so that they would get massive amounts of dividend payments (depleting the company’s cash reserves, which were in the billions of dollars, in the process), sold some of the company’s assets in order to finance the company’s debt, and eventually just let the company go bankrupt because by that point they had been systematically looting the company, which they had essentially bought for nothing, for more than a decade. (The endgame they weren’t able to pull off in scenarios like this one is taking the company public, selling large amounts of common, non-dividend-issuing stock in order to raise money to cancel out debts - or just pay more dividends to the rich equity firms, it varies.) And Toys R Us is only one example of private equity firms driving retail chains into the ground: see also Sears, Payless ShoeSource, Sports Authority, Radio Shack (twice) and Aeropostale (since resurrected by new owners) among many others.

What’s happening with Party City isn’t as dramatic as those examples, but: in 2005 private equity firm Berkshire Partners bought the company, and then had the company take on debt so that Party City could acquire competitors like Party America, Factory Card and Party Outlet and the party supplies division of American Greetings. (Party America was owned by another equity firm named Gordon Brothers. Berkshire Partners was invested in Gordon Brothers at the time, so they were essentially using Party City’s money to increase the value of one of their assets while enlarging Party City at the same time.) Berkshire sold Party City in 2012 to another equity firm, Thomas H. Lee Partners, for a large profit. THLP has since used Party City to acquire more assets, including purchasing about 50+ stores for an average purchase price of over a million bucks a store from various multi-franchise owners over the past couple of years (and as far as I can tell at least some of those multi-franchise owners are… other private equity companies), and took the company public in order to generate more operating capital. In 2005, Party City had a debt leverage ratio of about 1.5 (which is average-to-good); right now it has a debt leverage ratio of 5.7 (which is definitely a warning sign at minimum).

It’s far too early to do a postmortem on Party City and determine if private equity is running it into the ground, and it is certainly possible that this is a case of an equity firm actually doing their best to run a company well rather than vulture-capitalize it to death. But when Party City announces that they’re shutting down stores because of a global helium shortage that A) affects only part of their business, since they sell plenty of other stupid disposable party shit other than balloons, B) it is impossible for them not to have known about this shortage years ago, and C) they have already announced they have rectified the helium situation for the company via new purchase contracts, in a context where they went on a store shopping spree over the two years prior? There is at least cause to be suspicious, because it looks to me like they went shopping for assets they could flip (the real estate in the stores, perhaps) rather than went looking for assets they could use to expand the business.

What I am saying is: this looks much more like a planned closing than a reaction to current events. And, like, I get that the tribulations of Party City can seem like a minor blip on the radar compared to all the problems of the world, and, not to dismiss the poor sods who had jobs at those closed stores until recently, but it is a minor blip, comparatively speaking. But it’s a minor blip that looks a lot to me like a good functional example of how we have severely fucked society, because we’re talking about hypercapitalist practice ruining lives in pursuit of profit generated by misuse of a non-replaceable commodity.

SPRINGBOK TO THE FUTURE

South Africa’s election last week was, honestly, a more-of-the-same election, except maybe not quite.

The African National Congress (IE, “Mandela’s party”) won again, just like they have every election since 1994 when Mandela won, but wit a smaller vote share than usual - normally the ANC takes about 65 percent of the vote, give or take a couple points, and about 250 seats in the 400-seat National Assembly. This time, under Cyril Ramaphosa (a rich businessman who is probably slightly corrupt at least, but probably not nearly as corrupt as former ANC leader Jacob Zuma was) they got about 57 percent of the vote and 230 seats.

What is interesting about this is that the share of the vote that the ANC lost didn’t go to their traditional rivals, the centrist Democratic Alliance - instead, the lost ANC vote was evenly split between the Economic Freedom Fighters (who are old-school communists in all but name) and right-wing parties like the Inkatha Freedom Party (for the old-school black fiscal conservatives), Freedom Front Plus (for white Afrikaners) and the African Christian Democratic Party (for socially conservative African Christians who want sodomy laws back on the books). This serves to at least partially confirm a theory many people have had about the ANC for some time, which is that its wide base of popular support probably has as much or more to do with its historical pre-eminence as it does with its socially democratic policies.

Other than that, though, not a lot else to say about this one. The ANC gets another five years to try to improve South Africa’s lot, and although South Africa is hardly some backwater nation, it’s still got massive youth unemployment and a poverty problem it still hasn’t come close to partially solving. To be honest, if things continue to sort of meander along in their way I would expect the ANC to win the next election as well, albeit even more narrowly as voters get more disenchanted - but, then again, five years is a long time, and Ramaphosa is one of the last of the Mandela generation of activists to take office, and soon we’ll be in a definitively post-Mandelan era of governance, and who knows what happens then?

THE TORIES VERSUS THE BEER STORE IN A WAR OF TWO SIDES YOU BOTH WANT TO LOSE

The Beer Store is kind of bad.

Non-Ontarians might not understand this (“Chris, are you saying that a store that sells delicious beer is bad? I don’t understand”), so let me explain: in Ontario, with a few minor exceptions, almost all liquor and alcohol sales are controlled by the government. You can either go to your local LCBO (Liquor Control Board of Ontario) store, which sells booze and beer and so on, or you can go to one of the few privately-owned options for purchasing alcohol - directly from a local brewer/distiller/vineyard, at a few large supermarkets with special licenses, or one of several privately owned chains of alcohol retailers - all of which are owned by consortiums of alcohol producers - the largest of which is The Beer Store.

The Beer Store, which has been around since the end of Prohibition in Ontario (1927), is owned by a consortium of brewers - but realistically, most of it is owned by Molson-Coors (51%), InBev (which owns Labatt Brewing - 45%) and Sapporo (which owns Sleeman Breweries - 4%). I know those numbers add to 100%, but in reality there’s like 0.01% owned by some other small brewers in Ontario and I’m rounding a little, because really, the other small brewers have zero say in how The Beer Store is operated and the large brewers are the ones calling all the shots.

The Beer Store controls about 80% of the beer market in Ontario, has signed agreements with the LCBO so that only The Beer Store will sell larger cases of beer (the LCBO restricts itself to singles and six-packs) and that only The Beer Store will sell the most popular brands of beer to restaurants and other business clients, and at this point you’re probably saying something like “…this sounds like a foreign-owned monopoly which is draining money from a public entity” at which point anybody who lives in Ontario just shrugs and says “yeah, and?” because we’re just kind of used to it by now, and the one thing you can definitely say in defense of The Beer Store is that it does ensure that beer remains cheap, and honestly, people will put up with a lot if the beer is cheap.

(In fairness, although craft brewers dislike The Beer Store because it tends to focus its marketing on, big surprise, the brands owned by its majority shareholders - the evidence argues that it does also do a reasonably good job of distributing smaller companies’ beers at a fair price. But it could probably do better if it wanted to do so, which it doesn’t, because they would rather sell more Coors-branded piss to us.)

In 2015, the previous Liberal government expanded beer sales to a number of large supermarkets. In order to do this, it had to sign an agreement with The Beer Store because The Beer Store operates under agreements where it shall be compensated if Ontario causes it to lose revenue by, say, letting other companies sell beer. Doug Ford, already famous for his idiotic buck-a-beer promise (which was technically fulfilled when one or two brewers briefly sold buck-a-beer beer for a few weeks until they stopped because beer isn’t profitable if you sell it for a dollar any more), has also promised that convenience stores will be allowed to sell beer in his Ontario.

Now, granted, this is a bad idea, because it’s pretty easy to buy beer in Ontario already and on a societal level you don’t actually want to encourage people to buy alcohol, because the more drunk a society is, the more expensive it is to maintain: more drinking means more accidents (requiring more repair costs and healthcare costs), more alcohol-related illness (also more healthcare costs), more domestic abuse (healthcare costs, increased welfare costs) and lots of other things that we, as a society, generally do not want to happen at all, much less want to pay for. But, setting aside the novelty that is “Doug Ford has a stupid and shitty idea,” it’s also a bad idea because it would potentially violate the Beer Store’s provincial agreement and/or its revised agreement made under the previous government, which would mean The Beer Store would be entitled to penalty payments from the province of as much as a billion dollars. Which is why The Beer Store’s employee union is already running ads about how Doug Ford wants to waste a billion dollars of your money.

The Beer Store is, on the whole, bad - although its delivery system is actually a model worth exploring and adapting, it is unfortunately quite co-opted by the big brewers at this point and any sane argument in favour of it requires a re-working of the core concept. But Doug Ford and his government are simply not smart enough to do anything remotely right about this; instead, they’re teasing at a dumb idea not worth pursuing that will cost the province money it can’t afford to waste.

THE ENTERTAINMENT SECTION

Movies watched/rewatched since last newsletter:

Escape Room (2019, Adam Robitel, Google Play rental) - 3/5

The Dirt (2019, Jeff Tremaine, Netflix) - 1/5

Brexit (2019, Toby Haynes, Crave) - 2/5

We also watched the first episode of Chernobyl, HBO’s new miniseries, and my comprehensive review of that is as follows: fuuuuuuuuuuuuuuuuuuuuuuck.

Anyway I have to spend the rest of the week rewatching Kawhi Leonard’s buzzer-beater against the Sixers, so see you in seven.