Walter White's Empire, As a Business: Would You Buy Shares of MethCo? (#7)

[While this is not a discussion of Breaking Bad's plot, there are some spoilers.  So, if you haven't gotten into the most critically-acclaimed show on TV yet, consider bookmarking this and firing up Netflix right now.]

In season 4, Walter White tells Skyler that he is pivotal to a business "large enough to be listed on the NASDAQ", and this got me thinking: is this true?  Also, how would Walt's meth operation fare as an business investment?  How does it compare to other industries?  Numbers and costs are mentioned throughout the show, and all one has to do is write them down to get a basic picture of a fictionalized MethCo (METH), with Walt, Mike, and Jesse as CEO, CFO, and COO respectively.  This was not hard for me to do, mostly because Breaking Bad is the best show on TV.

So, without further ado:

In season 5 Walt and Jesse cook "nearly" 50 pounds of meth (let's say 45), which brings them $1,379,560 in gross profit, or their revenue minus the cost of the raw materials.  The time period over which this money was made is not told explicitly, but we will assume this was one week for reasons explained later.  So, all the numbers given for a week will be multiplied by 48 (assuming 4 weeks vacation pay.  Cooking is hard work) to show yearly amounts.

Mike takes a big chunk of the income for expenses only required due to the illegality of the business (legal meth would eliminate these costs, but also drive down the price with competition, taxes and regulations); the biggest piece was nearly 25% in "legacy costs", or paying off the families of the 9 men in jail from the last operation.  Walt's anger in paying for this was in one sense justified; the last operation was a separate business and shouldn't appear on their balance sheet unless there was a kind of chapter 11 bankruptcy that made this operation a successor to the last one.  However, (SPOILER) since Walt killed Gus, and is the reason this operation failed and the men imprisoned, we'll just call this a necessary business expense.

** Mike informs Walter that methlymine, their most important and difficult-to-legally-obtain ingredient, will become an ongoing expense even though the first shipment was free.  The cost (and effect on the business) is not brought up, but I can figure this out.  1 gallon, according to the infinite wisdom of the internet, could make 74 pounds of meth, so MethCo would need ~30 gallons of methylamine to last a year making 45 pounds a week.  With 1000 gallons of methylamine going for ~$15M on the black market (as evidenced by the proposed sale in season 5's "Buyout"), this would set the 3 not-so-amigos back a half a million, easily a million after the cost of safely obtaining and moving it.

So, MethCo would earn $18.5 million on sales in the 70 millions.  Walt's right that he can support a NASDAQ-sized enterprise, but MethCo is hardly Apple.  His business's sales would rank below thousands of publicly traded companies, among such heavy hitters as StealthGas, Inc (74M in gross profits) and PetsMed Express (77M in gross profits).  The business's income is a little better, around the 40th percentile of NASDAQ-listed companies, but there are CEOs of much larger companies that manage to not become egomaniacs.  Regarding margins, Walt's 20% (higher if he can scale production to send to, say, the Czech Republic) is more impressive, similar to mature cash cows like IBM, Google, and the company to which Walt compares his product: Coca-cola (21% PM in 2012).

Walt's high sense of self-worth stems in part from the fact that he is not only the primary decision maker in his empire, but also the 1/3 (and later primary) owner.  Working at Google is no reason to do doughnuts in a parking lot and then sell your car for $50, but owning a third of Google probably would be.

Investors would not pay that much for a piece of Walt's drug empire.  It is far riskier, has more dangerous management, and is less likely to be around in a year than virtually any publicly-traded company, but is performing better than only half of them, depending on what metric you use.   

But as Walt has himself confirmed, money is not the primary motivation for his cooking meth.  The industry in which Walt has involved himself is perfect to satisfy a dormant over-sized ego.  There is little competition and even less competent and intelligent competition, intimidation is the currency of all interactions, and staying above the law relies on detachment from others and a cold, single-minded focus on expansion. Walt provokes conflict with Mike in the scene I discussed not because he needs more money, but because he must preserve his feeling as the ultimate decision maker, and the smartest man in the room.  He's in the empire business.

Is my view of the empire unjustified? Is my math awful?  I'd appreciate your thoughts!

Epilogue: Playing To Win, Respectfully (#6c)

Epilogue:

You’re probably here from my Settlers of Catan Strategy Article, where I condone manipulative tactics to improve a player's chances of winning.  Some of you might take offense to this, so allow me to clarify my view on playing hard:

The beauty of games is that they imply (or should imply) no hard feelings.  If a player exaggerates or outright lies in game, it is 100% not personal.  If this isn’t obvious, make it known before the game begins that what happens in-game stays there.  And if your friends can’t separate their feelings of right and wrong, nice and mean for one hour of their lives, they probably aren’t ideal gaming partners.  You could still play with them, but it’s no longer quite a game in the sense that the point of games is to try your best to win.  This article explains my views on playing to win well, if you want a thorough, 3000+ word defense.

This is where games shine; where the goals of life can be frustratingly vague and complex, games act as a respite, a simpler universe where victory is your sole, obvious, quantifiable goal.  It goes without saying that are lines that can’t be crossed, mostly because life is more important that any game.  Don’t divulge your opponents’ personal secrets, insult them, or otherwise risk your friendships.  A great game encourages friends to become heartless dictators for an hour, and even better friends the next.

Settle Of Catan Advanced Strategy Guide: The Social Game, Part 2 (#6b)

This is the second half of my Settler of Catan article.  If you stumbled upon this without reading the first half, here you are.

Rule 4: Knowledge Is Deadly If You’re Just Givin’ It Away

At the basest level, you probably know not to show people your development cards** or hand.  But if you won't offer up this piece of information, why give away others?  Don’t say “all I get is wheat and logs”, or you’ll never be able to act as though it is a hot commodity worthy of a high price.  Any sort of side chatter like, “I’m always waiting for ore” or “I've got sheep for days” weakens you in negotiations.  If you want to play well, there is rarely a better strategy than keeping quiet and talking about other things.  I wouldn’t suggest complete lies about resources, as smart players will keep a rough track of what you have.  You can, however, bend the truth, by saying you have all wheat when really you have just mostly wheat, so that people will trade you that third rock, or a player who also has wheat doesn’t want to rob you.

Corollary to rule 4: scoop up knowledge.  How well you play Settlers is dependent on how much you are willing to pay attention.  I don't memorize every card that is picked up (this is supposed to be fun, after all).  However, a frame of reference for what’s going on in everyone else’s shoes (ex. “Jen is strong on city materials but is dependent on an 11 for clay”, or “JFran is pretty boxed in, so will be singularly focused on building roads along this coast”) helps you negotiate and plan.  While you focus on not giving away packets of info, make sure to pick up theirs.  When you can say, “I know you have more logs than you need, and clearly need my sheep to get on that log port”, you’ve gone a long way in breaking down their opposition to trading.  As an additional point, don’t gloat about your trade or indicate it wasn’t fair, as it will build up their resistance to trading in the future.  Plus, it’s kinda rude.

Rule 5: Your Opponents’ Division Is Your Strength

When your opponents have found some arrangement for mutual gain (“You scratch my back…with clay, and I’ll scratch yours…with ore”), it is your duty to interfere. While in general the rule is to only trade when you benefit more than you’re opponent, always try to get in on a trade that’s going to happen anyway, even if your gain is small, because one of your opponents improving their position is better than two.  Interfere otherwise by blocking the traded resource, grabbing your own supply and offering a better deal, or pointing out how much one player is benefiting from the trades.  You can even divide them in the social game, by decrying how aggressive or sneaky one player is acting in-game.  The hardest part is obeying this rule along with rule #1; if your efforts are noticed you're the bad guy.

None of this belittles the value of forming your own alliances or trading arrangements.  There is a value to the “team” atmosphere that stops someone from adequately fighting you once you’ve gone ahead.  However, the key to alliances is just making sure it’s not between the other players.  And honestly, if you’re taking these suggestions, you’re probably the one they’re teaming up against.

There’s nothing I like more in the game of Risk than watching my opponents fight to the death.  If you can subtly encourage an opponent to place their settlement near them as opposed to near you, you’re the one who really came out ahead.  If you can convince player B that it is in their best interest to rob player C (“she just got logs, and I know you need them!”), block them (“wouldn’t it be great to cut off her longest road/access to the ports?”) or even merely decide to wait instead of helping player C, you’re the big winner.  This idea of slowing down bad developments is quite important, and leads me to my next point…

Rule 6: Know The Time Value Of Money, Er, Resources

A dollar today is better than a dollar tomorrow, right?  This is true not only because hey, a dollar, but because that dollar can be put to use sooner.  With resources, this is why you should feel proud of yourself if you influence player B to defer a trade with player C for a turn, or even until B’s turn.  C gets that wheat one turn later, gets a dev card one turn later (more if you sense this and rob C), gets the bonus later, which means slower future settlements, and the disadvantage compounds.  This is why I often am willing to trade much of my entire hand to get that third settlement out first; the quicker I am, the more time that settlement gets to pay for itself.

This idea of “now, not later” is what encourages you to value a steadier flow of resources.  A settlement on two 10’s if just as valuable as on a 10 and a 4, right?  And a city on an 11 pays as much as a settlement on a 5, right?  Wrong.  The different numbers will (on average) create fewer dry spells over time.  These periods of waiting and twiddling your thumbs are what kills an otherwise good game.  Every turn you’re sitting on a hand of 2 sheep, you can’t get in on the action, turn them into something good via trading, stop your opponents from trading with each other, or build that emergency road to mess up someone's master plan.  Plus, resources coming in clumps increase the danger of the robber.  So, move quickly, while of course telling your opponents there is no rush.

I always start a game by counting up the total pips on tiles of each resource.  If wheat has numbers of 2,3,10, and 11 (8 pips), while sheep has 4,5,6 and 9 (16 pips), you can expect it will be the Great Wheat Famine of 2013, and sheep will be basically toilet paper.  Knowing how the value of resources fluctuates is both dependent on experience and hard to quantify, but there are some patterns.  Clay is the most valuable in the early game, while ore is needed later to reach ten points (especially due to them each having fewer tiles on the board).  So, rob accordingly!  While the basic strategy is to count up the pips on the tile for comparison (3 settlements on a 3, or 3x2 pips ≈ a city on a 4, or 2x3 pips), this is the best play only some of the time.  Other times, a tile becomes irresistible to block off when it is another player’s only supply of what they need to move forward.  Don’t be afraid to block the only good wheat spot during the Great Wheat Famine with the robber, or even with roads.  Some say, “oh, you’ll need the Blue Terror to get them so you can trade.”  Nonsense.  This puts them in the position of power.  Wait it out, get a port, and trade with the outside world.

Wrapping Up

You’ll notice a number of rules mention subtlety.  To be a great player of Settlers you need to have a “constant aura of manipulation” (Jen’s words, not mine).  You impact decisions even when it seems you’re just talking about the weather, and carefully build on what people are saying about the game to craft a narrative (ex. Derelle’s winning, but Dave is the threat if he gets that port or Longest Road) that is both believable and keeps you under the radar.

Even with determined implementation of these rules, you’ll probably only win half the time against good players or 2/3 of the time against casual players.  That’s why this game is more friendly than say, Chess: no amount of trickery can beat unfortunate dice rolls, and everyone gets to win sometimes.  And this is more reason to observe rule 1 and not be a jerk: it saves you the embarrassment of saying the dice conspired against you.  And of course, remember to always win have fun.

Click here for an epilogue on "playing to win".

I encourage you to comment with your own strategies, reactions, and insights.  And of course, continue to settle Catan everywhere.  It’s one of the only games regular folk can enjoy alongside nerds.

**Unless you’re practicing one of my favorite negotiating tactics.  Whenever an opponents is considering robbing you, flash the knight and say, “I promise I will send it back on you next turn if you rob me”.  Showing the card lends credibility to your claim ("speak softly" and all), and can be used be used repeatedly when your opponents sees no better choice that repeatedly backing down.  A little intimidation goes a long way.

Settlers of Catan Advanced Strategy Guide: The Social Game (#6a)

The Settlers of Catan is a game where nice people learn to become ruthless manipulators and aggressive negotiators.  It stands at the perfect midpoint between games easy to master and those that couldn't be mastered in a lifetime (looking at you, Bridge).  And it's fun for the whole family.
  
Catan can be played virtually perfectly, but is still worth the effort to work at, because it requires a combination of both “hard” math-y skills and “soft” interpersonal skills.  I can assume if you’re reading this you’re familiar with not only the rules (if not, ….here) but the basic probabilities that guide decisions.  For example, since a 9 is rolled 2x as often as an 11, it is worth roughly 2x as much to you to settle there,and if you end your turn with more than seven cards in a game with three people, you’ll make it back to your turn without the robber ruining your day a little over half (5/6 x 5/6 x 5/6) of the time.  However, the hard skills are not why I thought to write a strategy guide for Settlers, as that’s rather dry.  I’m writing this to explain the social elements of Settlers of Catan.  I might as well spill the secrets on my own terms as my friends get more ruthless and start to catch up.

So, without further ado…

Rule 1:  Be Someone Who Other Players Would Be Satisfied Losing To

The rules of decency don’t always contradict the rules of good play.  Saying you are the greatest Settlers player to walk the Earth is not only annoying, but terrible play. Settlers has mechanisms to hurt whoever's leading, such as robbing, blocking and trade embargoes, so make sure your opponents like you!  When opponents are playing sub-optimally just to undercut you, or consider you a threat even when you’re behind, you’re probably going to lose. 

If you’re goal is to win*, let your play speak for itself.  If you’re robbing someone or cutting them off, be outwardly sympathetic.  Give praise where it is due; if the red menace makes a speedy play for the best expansion, acknowledge it.  Being a decent human being will help when you’re crushing your opponents later with the rest of these suggestions.

Rule 2: Be Non-Confrontational Not Just In Tone, But In Action

Usually, actions speak louder than words.  Building your roads into uncharted territory, even if it’s not the most prized spot, means you’ll piss off opponents less later on, expand at your own pace, and maybe even be seen as magnanimous for not picking fights.

If you can gain the impression of making decisions “for fun”, “randomly” or “out of fairness”, you minimize retaliation.  I remember a contestant on the very first season of the reality competition Survivor (Shaun, if you’re wondering) was completely random in his votes to eliminate others.  Due in part to his perception of harmlessness, he didn’t receive a single vote for elimination until he was the last member of his original tribe.  You can do the same (or be seen this way) with robbing.  No one can fault you for promising to alternate your looting, unless one player is “just too far ahead, so we have to” (even if they are not).

Rule 3: You Are Not Winning, He Is Winning

Never admit your strength out loud.  So you got triple clay?  Take the cards and shut up.  I’ve started embargoes on another player who has fewer points or overall prospects than me, purely by calling attention to his strengths and playing down my own.

“Ugh, even though I have double your settlements, I still can’t do anything without wheat!”  Put on a show and call attention to a run of bad luck to be seen as less dangerous*. 

When convenient, build in a way that is less scary to opponents.  A huge length of road attracts retaliation even though is it worth at most 2 points.  5 settlements alone won’t win you the game, but will sure get you embargoed.   Cities are worth just as much (or more if they're on a great spot) as two settlements, but tend to intimidate players less than 2 settlements.  Development cards are the best ways of hiding strength, as opponents never know your exact victory point count.  Plus, you get to choose the right time to reveal your large army.  One of the best compliments I’ve received playing a negotiating game is “Jordan always seems to be under the radar and come out of nowhere”.  Sure, there probably were signs I was getting closer, but if I can help it, I won’t show them to you.

Find part 2, with advice on managing the flow of knowledge, resources, and the game, as well as building alliances and breaking up your opponents’, here!

*Clearly there are limits to competition, especially among friends, but we will disregard them for this article.  When you’re done reading, feel free to check out my epilogue on playing to win, respectfully.