"Gambling Man: The Wild Ride of Japan’s Masayoshi Son"
As we noted introducing March 26 2025's "OpenAI Close to Finalizing A $40 Billion SoftBank-Led Funding At A $300 Billion Valuation"
SoftBank's Mr. Son's entire history, going back to the dot.com bust is leveraged beta.
He was very fortunate that the British didn't allow Nvidia to buy ARM Holdings, thus clearing the way for his bid. Otherwise his claim to fame would be being the largest investor in WeWork....
From the London Review of Books, March 20, 2025:
Gambling Man: The Wild Ride of Japan’s Masayoshi Son
by Lionel Barber.
Allen Lane, 388 pp., £30, October 2024,978 0 241 58272 5 When I started developing software for the management consulting firms I worked for in the mid-1990s, we still had to connect to the World Wide Web on slow and clunky lines to access our coding work. The laptops we carried weighed at least five kilogrammes and couldn’t be used for actual programming. One of our clients was a matchmaking company, which operated a number of neighbourhood storefronts where lonely hearts could flick through albums with the pictures and profiles of potential partners and leave messages in numbered pigeonholes. The firm had hired us to ‘automate’ both their core business and their back-of-house customer service functions. Our job was to set up electronic kiosks in the stores, so that punters could watch videos of and send electronic messages on the internal company network to people they fancied. We also designed a spartan database to keep track of customers, subscription payments and dating history. Our long-term plan was to move the business ‘online’ so that customers could dial up into the ‘business-to-consumer’ (B2C) interface and browse virtual ‘face books’ from the privacy of their own home.
This was the era of what came to be termed Web 1.0. In the aftermath of the Cold War, many of the tech stars who used to graduate from MIT and Carnegie Mellon and enter the US war machine were in California working in the private sector. Personal computers moved out of institutions and into homes and the software boom began. ‘Dot-coms’ began producing goods and services to sell to other businesses and to consumers. Business-to-business (B2B) products included everything from servers and routers to customer service, advertising and marketing databases.
To build the customer service software for our matchmaking clients, we needed a database program from Oracle and server management software from a company called Scopus Technology. We had to work in the Scopus building in the San Francisco Bay Area to adapt their software to the needs of our client. One day I was summoned to the offices of the two Iranian-American brothers who owned the company and offered a massive pay package and stock options if I joined Scopus. Technology companies were desperate for software developers. Since I was about to move to New York to go to graduate school, I turned them down. A couple of years later Scopus was acquired by Siebel, which was itself later acquired by Oracle. If I had stayed, I could have cashed out those stock options for a lot of money.
In the 1990s, huge amounts of money and debt were sloshing around in the software business. If a company ‘founder’ claimed to be doing something new (the homo economicus discourse of ‘disruption’ came later), investors were very likely to buy in. Venture capital firms hired cocaine-fuelled young MBAs to build up their operations. Many of the venture capital firms were leveraged up to their eyeballs because interest rates were at a historic low and because, in the US, the Taxpayer Relief Act (1997) had lowered the marginal rates on capital gains. Smaller companies were acquired at inflated prices by bigger companies. Many of the men (they were almost all men) perceived to be business and technology visionaries were lucky beneficiaries of the end of the Cold War and the public funding of technological innovation.
One of these men was Masayoshi Son, founder of SoftBank. Between 1945, when the US’s seven-year occupation of the country began, and 1973, when oil prices, until then controlled by US and British cartels, were suddenly opened to the market, Japan was the world’s fastest-growing economy. This growth depended on the Pax Americana’s guarantee of cheap oil, stable dollars and US military protection. Japan provided a base for the US in the Pacific, allowing it to fight its wars in Korea and Vietnam, and pacify insurgencies in the Philippines, Laos, Thailand and beyond. Some of the biggest US military bases are still in Okinawa, control of which didn’t revert to Japan until 1971. During the Korean War, spending by the US military doubled Japan’s industrial output. The Vietnam War opened up the US market to Japanese electronics and cars, transported on container ships which had delivered materiel to Vietnam and now needed a cargo to take back across the Pacific. By 1980, Japan was the biggest producer of cars in the world, and by 1991 of steel.
At around this time, Japan’s Ministry of International Trade and Industry began co-ordinating and rationalising industrial production, upgrading equipment and factories, and encouraging new products: transistors, computers, petrochemicals and synthetic fibres as well as cars. Plentiful cheap labour, corporatist employment laws and close relations between banks, suppliers and producers meant that economic policies had rapid effects. Centralised industrial planning encouraged the standardisation and automation of production as well as innovations in logistics. From the 1970s until the early 1990s, Japan’s share of the US trade deficit was a third. This was seen by chauvinists in the US as an attack on their God-fearing country by disciplined, inscrutable Asians.
As the first major wave of Japanese electronics and cars arrived in the US, so did 16-year-old Son, the precocious child of a Korean-Japanese pachinko parlour tycoon – pachinko is an arcade game. His six-year stay in California was funded by his father, who granted Son permission to make the journey on condition that he accepted financial support from home. Son spent his time coming up with ideas for businesses and making connections. According to Lionel Barber in Gambling Man, Son claims that one of his first inventions was a portable electronic translator intended to be used by international travellers, though a former business partner told Barber that Son didn’t have the technical knowledge to design such a device. ‘There were a lot of people talking about electronic translators at the time. The beauty of Son’s idea was to sell it in [airport] kiosks.’
Son returned to Japan in 1980, and a year later launched a software distribution company called SoftBank Japan to take advantage of the market for word processors, spreadsheets and other programs designed for personal computers. He set up a publishing company to bring out computer and technology magazines, and put on trade shows, in effect owning both the products and the vehicles for marketing them. But Son had larger ambitions, and in 1995 purchased Comdex, which operated the world’s biggest technology trade shows, for $842 million, leaving its previous owner, the Las Vegas godfather Sheldon Adelson, to expand his gambling empire. Adelson was so grateful for the above-market-price sale that decades later he introduced Son to Donald Trump, and lent him his yacht so that he could go snorkelling with Saudi royals.
The same year, Son added the computer publishing house Ziff to his portfolio, at a cost of $2.1 billion. Barber – unimpressed – points out that this was ‘not as much as Sony paid for Columbia Pictures ($3.4 billion)’. With Ziff, Son had bought a stake in Yahoo! and in 1996 he launched Yahoo! Japan. He bought Vodafone Japan for $17 billion, $12 billion of it in cash, in what was then Asia’s largest leveraged buy-out ever. To secure the debt, his finance people arm-twisted ratings agencies to improve SoftBank’s rating from BB to BBB and secured a loan on very favourable terms: any future cash flow would pay off the interest rate on the debt before dividend payouts had to be made. SoftBank then boosted the number of Vodafone customers by offering subscribers to Son’s Yahoo! Broadband and SoftBank Telecom businesses flashy mobile handsets and undercutting competitors with pricing plans so outrageous that the company was censured by the Japanese Fair Trade Commission. The debt was made good in 2008, when Son won the Japanese distribution rights for the first iPhone from Steve Jobs himself.
Son benefited from the Reagan-era financial engineering that was meant to slow the flood of Japanese exports which had brought US manufacturing, especially the automobile sector, to its knees. In 1985, Reagan’s Treasury secretary, James Baker, negotiated the Plaza Accord, which depreciated the US dollar in relation to the mark, the franc, sterling and the yen. Although Japan acquiesced to the agreement, its government brought in a stimulus to counteract the effect of the accord; the injection of cash, in turn, led to an asset price bubble in the late 1980s. When, in 1989, property prices inevitably crashed, the Nikkei price index followed. The policies that resulted from this, especially the liberalisation of banking, and low or negative interest rates made it easier for new players such as Son to enter the big business leagues and put together enormous syndicated loan packages. Helpfully, the appreciation of the yen against the dollar also meant that Son could buy US technology companies more cheaply.
SoftBank’s most successful investment was not in Silicon Valley, however, but in China. The Chinese e-commerce platform Alibaba was set up by Jack Ma in 1999, and quickly became an online space for B2B, B2C and consumer-to-consumer (C2C) marketing and sales. SoftBank spent just $20 million to acquire 30 per cent of Alibaba’s ownership. When the company was listed on the New York Stock Exchange in 2014, the flotation was the biggest ever in the world: Alibaba’s market capitalisation was valued at $230 billion, or as the Financial Times reported, ‘larger than fellow tech giants Facebook and Amazon, and big US companies such as J.P. Morgan and Procter & Gamble’. SoftBank’s $20 million investment was now worth $70 billion – a 350,000 per cent gain. Because Alibaba was so valuable, Son could sell its shares as needed to shore up SoftBank’s finances.
Son had ‘smelled the money’ in China because Japan had been investing at a vast scale in enterprises there ever since Deng Xiaoping’s ‘opening’ of the Chinese economy in 1978: it was the place to look to for opportunities. The timing of Alibaba’s founding had also been propitious. China had liberalised private ownership and foreign direct investment in the early 1990s and, as poverty rates fell, markets for consumer products expanded. With China’s accession to the World Trade Organisation in 2001, Alibaba was in a position to export Chinese products, taking advantage of extensive state investment in both domestic and transnational logistical infrastructure.
Not everything went Son’s way. The bursting of the dotcom bubble in 2000 and the global financial crash of 2008 posed existential crises for SoftBank. In the mid-1990s, the firm had invested nearly $5 billion in more than fifty technology companies in Silicon Valley, many of them loss-making and soon to be forgotten. In 2000, SoftBank’s value fell to one twentieth of its value the previous year, and Son himself lost 96 per cent of his paper wealth. To raise money, he sold shares in his successful ventures, especially Alibaba. After the 2008 crash, SoftBank was exposed to $750 million of Goldman Sachs’s collateralised debt obligations; more significantly, its acquisition of Vodafone Japan two years earlier had meant taking on $23.8 billion of debt. The company’s subsequent recovery was aided at least in part by the flow of cheap money unleashed by stimulus packages in both the US and China. The people who had lost their homes or savings were not so lucky.
From the start, SoftBank had employed financial wizards, many of them former bankers, most of them US-educated, who put together increasingly complex and opaque loan packages that blurred the line between Son’s personal assets and debts and SoftBank’s corporate holdings and leverage. The company became a conglomerate with evolving functions, from publishing to telecommunications infrastructure to technology distribution, and eventually to venture capital. Son packed the board with loyal friends and decided the direction of acquisitions and investments almost single-handedly, often inspired only by intuition.....
....MUCH MORE
Having observed Mr. Son and his position in the parade—from Drum Majorette leading the way, to being the guy cleaning up after the elephants, and then back to the front— we had this introduction in February 2024:
Since the time he almost went broke after the dot.bomb bubble burst (he had briefly been the richest person in the world) I've come to realize this guy isn't some great visionary/grand strategist; he's just leveraged beta. Making big bets, all geared up, on whatever is at the head of the passing parade.
That said, he owns 90% of ARM Holdings and I don't.
Bastard.
