Nasir and Matt kick off the week discussing Apple's acquisition of Beats and whether it was a smart purchase. They then answer the question, "Should I give some of my employees a corporate credit card?"
NASIR: Welcome to Legally Sound Smart Business.
This is Nasir Pasha.
MATT: And this is Matt Staub.
NASIR: And this is our podcast where we cover business in the news with our business legal twist and also answer some of your business legal questions that you can send at firstname.lastname@example.org and dot-pizza when that comes.
MATT: I think we’ve said that enough now, I don’t know. The joke might be…
NASIR: No, it’s not a joke. I just want to get used to saying it when we do get it.
MATT: At some point, I guess one of us is actually going to have to look up if that’s even going to become a thing.
NASIR: No, it is. I think you thought I was joking these past few episodes but I’ve been looking it up. I don’t know the exact date that it’s coming out. Like you said, you can pre-register them right now but dot-pizza is coming and it’s coming to a podcast near you.
MATT: I’m just skeptical and this is actually a very nice tie-in to our story here because it’s about something that you never think will happen but you just keep hearing about it and the hype is all there. Of course, I’m talking about Dr. Dre’s most recent album that was supposed to come out every day for the last ten years and hasn’t. You see the tie-in there?
This is nice because we’re talking about Beats by Dre, how they just got bought. It’s official now. The story came out a couple of weeks ago but Apple just purchased Beats by Dre, Beats Electronics I think is the actual name – Beats, whatever you want to call it – Beats Audio Hardware, Beats Music. Three-billion-dollar purchase; 2.6 billion in cash, 400 million in stock.
The price tag is one thing that’s really interesting but Apple is really not known for buying well-known companies – at least well-known to the general public. So, this seems like a different type of acquisition for them as opposed to their normal “We’re just going to buy up technology companies that are doing really well, something we really like” especially because, from what I can tell, Apple has a lot of these things already in place. It’s a different type of acquisition, I think.
NASIR: It is interesting because their headphones are pretty iconic. In fact, I would say some people would argue that the Apple headphones beats Beats. How’d you like that? I just kept thinking about that episode of The Office where I think Jim’s making fun of Dwight saying, “Beats beats Battlestar Galactica or something like that.
MATT: Different type of Beats.
NASIR: Different type of beats. Nonetheless, I think people are confused by the acquisition as well because it’s not normal. But I started looking more into this story.
What’s interesting is that, in the inception of this Beats concept where this guy named Lamar – I think that’s his last name – he actually came up with the concept, “Okay, let’s design headphones that are backed by some kind of celebrity,” and got up and started talking with Dr. Dre and so forth and went to this designer that the owner or partner was actually a former designer of Apple. Because of that, very early – this was back in 2006 even – there was some contact between the Apple Retail VP and this company and there were some lawsuits regarding that with this design company later on that’s kind of irrelevant to that but what’s interesting is that, back in 2006, Apple was in contact with this company and here we are a number of years later where Apple is buying them for three billion dollars.
MATT: Yeah, and I mentioned the price. A lot of people have been talking about that. They think it’s outrageous. I looked a little bit more into the numbers. The cash reserves of Beats is 150 billion. Keep in mind the purchase price was three billion and then the estimated annual sales of Beats last year was two billion and it’s also barely over one percent of Apple’s 171 billion revenue last year. Like I said, people are really obsessing over this purchase price but, you know, if you’re looking at those numbers…
NASIR: That’s true, and Apple’s known for their huge amount of cash that they have in their balance sheet because interests are so low and so forth so it is a big ticket from my perspective. I mean, usually, I’m used to spending about two billion per year or so but three billion is just way too much for me.
MATT: Yeah, that’s about right for you. That’s what I would have said, too.
Another thing is it’s pretty obvious they’re also making this acquisition for the names involved, too, which I think will definitely help. I mean, that alone could almost justify paying a lot of money for this.
NASIR: Yeah, and they also talked about the streaming service. I’m not familiar with it but, apparently, Beats has some kind of free service but they’ve been able to convert a number of their customers to some subscription model and I think Apple has something similar. I assume it has more to do with that play as well. Some people are just saying that because Apple has so much cash right now, this is just one way to bring more attention to innovation that Apple is trying to put themselves more forefront because they’ve been a little bit slow on the innovation side in the last couple of years.
MATT: Yeah, that was interesting. I saw as well that Beats has been really successful in converting unpaid customers into paid. They’re doing something right, I guess.
NASIR: I’ve been told that these Beats headphones are merely just like any other headphones with built-in equalizers or something inside.
MATT: Yeah, I’ve never used them.
NASIR: From a technical perspective.
MATT: I’m not a fan of the headphones that cover the ears. I like them as small as possible. I guess what are they going to do with these? These are bigger than the phones that people are going to be plugging them into. It’s just kind of weird.
NASIR: It’s true. But the worst is you’ve seen people working out with these things. You see them running down the road and they have these big headphones on. Literally, that’s what you saw in the 80’s, right? These big headphones, people running. Now, it went small as possible and now it’s going back to big which is just funny.
MATT: I’m sure they’ll do something very intelligent with these but we’ll keep an eye on this just to see kind of how they change the look of everything.
NASIR: Let’s get to our question of the day. It looks like it’s coming from an ad agency in New York City. It must be one of the big ones.
MATT: Based on that description, it’s obvious that it’s one of the big ones.
NASIR: Yeah. I mean, New York City, there can only be, like, I was trying to think of an ad agency, I can’t think of one.
MATT: Yeah, I’m not sure either.
“Should I give some of my employees a corporate credit card?”
NASIR: All right, let’s see. I was thinking about this question. One of the issue is what if one of your employees misuses one of the credit cards and so forth and what you can do about that. You’re basically entrusting your employee to do that and there’s ways, you can make an agreement saying that they won’t do that and, if they do, maybe garnish their wages and so forth, but that might be an issue in certain states, especially in New York. So, you’re definitely taking a risk but it’s the same thing, I suppose, of giving them cash – except, in a credit card, you can track every dollar and where it’s going to.
MATT: That’s a really good point. If you gave them cash, you have no idea what they’re spending it on unless they bring receipts back. Even then, it’s so much more difficult to track than just a credit card where everything is itemized out on a statement.
But I think the answer to this is pretty simple. If you’re going to do it, if you’ve decided to do it, give it to the employees that you trust to make the right decisions so you’re talking more people towards the top of the company. I wouldn’t just hand it out to random people but I guess it can trickle down as well. If you guys have people out on the street, trying to make sales or taking people to lunch, you know, maybe it might make sense.
But, at the end of the day for me, it comes down to it’s got to be someone you trust no matter who they are in the company.
NASIR: Yeah, and something to keep in mind with the business corporate cards is that, depending upon the number of employees – and I can’t remember exactly, I want to say ten – as consumers, when there’s some kind of unauthorized use of our credit cards, we’re protected, right? I think it’s up to $50.00 or so.
With business cards, if you agree by contract, then that’s not the case. On top of that, if you give these cards to ten employees or so – I think the number is ten – then those protections go away but you cannot go after your employee for basically let’s say they lose the card and, because they lost the card, all of a sudden, thousands of dollars or charges go on your card and somehow your company is held liable for that, you can’t by law go after the employee. I think that there’s a limit. Basically, the same limit that you would be responsible as an individual in a consumer sense is the limit of your liability. It’s kind of a very subtle issue but that’s something to keep in mind – that it’s not just aa simple as giving out a credit card. There’s possibilities of liability because of those consumer protections are not there.
MATT: Right. I think too it should be said that no matter who has the credit card or credit cards, make sure they’re doing business expenses and not anything that might blur the lines of personal.
NASIR: That’s true and keep your receipts.
MATT: Keep your receipt.
NASIR: Just another tidbit there.
MATT: That’s your tax preparer recommendation, I guess.
NASIR: That’s probably the worst rule. I hate doing that because I prefer just to throw away receipts. It’s in the credit card statement but anyway…
MATT: I used to take receipts for everything. More recently, I just started thinking, you know, “Why am I even doing this?" For business stuff, that’s different, but I’m just thinking, in general, “Why am I even doing this? I just take it home, put it on my desk, look at it, and then eventually shred it.” I’ll just save them the hassle and stop there.
NASIR: You shred your receipts?
MATT: Yeah, I shred most stuff just because… I don’t know.
NASIR: You just like shredding?
MATT: I have an accounting background. I don’t know. I’m concerned about… things.
NASIR: What’s interesting is, like, depending upon your shredder, the receipt will be split up into, what, three pieces or so because it’s so small.
MATT: Well, not if you shred them the opposite way. if you put the longways towards the shredder.
NASIR: Oh, no, you can’t do that. No, that’s too reasonable.
MATT: I also just shred everything and then light it on fire. I don’t know why I shred it first.
NASIR: Like I said, you just like the shredder.
All right. Well, that’s our episode. We answered the question, right? Before we ended? I guess the answer is yes, I suppose.
MATT: Yeah. I mean, the actual question is kind of hard but, yeah, I guess we should have just said yes.
NASIR: We should have just said yes and ended it.
MATT: We’ll do an episode of lightning-round questions where we just do yes or no for like fifty questions and that’s the episode.
NASIR: Okay. Sounds good. I like that idea.
All right. Well, thank you for joining us!
MATT: Keep it sound and keep it smart.