Texas Hold 'Em
2003 was a breakout year for gambling. Well before men in their 20s with too much confidence and not enough wisdom had access to 24 hour a day online crypto casinos masquerading as legitimate investment marketplaces, we had to gamble the old-fashioned way, through card games of chance.
At the risk of aging myself, I was a college student in the early aughts. Seemingly out of nowhere, high-stakes poker became the single hottest thing on the planet. ESPN's coverage of the 2003 World Series of Poker was massive. I cannot emphasize enough how big it was. Chris Moneymaker (that's his real birth name) qualified for the No-Limit Texas Hold' Em tournament in an online satellite event; he'd go on to win the $2.5 million prize in dramatic fashion.
Online poker up until this point was growing at a reasonable clip. ESPN's coverage of the event singlehandedly took the industry from a niche place for gamblers to get their fix away from Vegas into a full-blown nationwide craze. The money poured into sketchy offshore casinos. But for us 20-somethings, every dorm room, frat house and off-campus apartment in the country became a poker hall. My whole extended family played nickel poker, with small bet limits. But the WSOP drama, where a man in sunglasses pauses tentatively before steelily declaring he's "All in" before pushing a massive pile of chips into the center of the table, was too good to not emulate.
5-card draw, 7-card stud, High Low Chicago? Bah. It was Texas Hold' Em or bust. The stakes are high, the drama is real, and with a shared 5 card hand face up on the table, everyone could see the majority of information, audience and players alike. Those two cards in the hole, held by the players, was the difference between winning and losing. Between going broke and getting rich quickly.
To turn this hopefully not-too-tortured metaphor onto the topic at hand, the early 2000s were a seminal time for this Substack's favorite guy in the world, Mr. Elon Musk. After getting kicked out as CEO of Paypal, Musk formed SpaceX in 2001. In 2003, Musk acquired the rights to purchase Rocket engines from Russia. Tesla Motors, founded in 2003 by Martin Eberhardt and Marc Tarpenning, ran into financing issues early on but was provided the spark and capital needed to continue with Musk's arrival in 2004. I'd say the rest is history, but Musk, the ultimate gambler, is still going all-in, hand after hand. Poker requires luck and skill, as does becoming the wealthiest man on the planet. Musk refuses to take any of the proverbial chips off the table.
Just as it looked like Musk was about to cash out at least some of his big winnings, he decided instead to bind himself to a hard-to-escape $45 billion liability of a corporate M&A deal. His ill-measured offer to purchase Twitter looked silly the second the ink dried on the contract; he's been trying to squirm out of the deal since day one. Musk loudly moved his companies, SpaceX and Tesla, from California to the greener pastures of Texas last year.
It's all come down to this hand of Texas Hold' Em. Elon Musk, the world's most reckless gambler, is about to find out if the music is over. And it all centers on the Lone Star state.
Texas Hold' Em, the game, has several phases: The Ante, The Flop, The Turn, The River, and The Reveal. Let's discuss.
Texas has a reputation among outsiders as being something of a Libertarian stronghold. This couldn't be further from the truth. Texas has essentially the same sprawling, complex and authoritarian bureaucracy as California. It's just that the Lone Star State favors a different set of people and groups as everyone's favorite West Coast "Big Government" punching bag. I could write tomes on this topic, but the two states are similar in governance and execution of laws. Neither State is all good or all bad but it's interesting to see where the two converge.
Texas and California have two of the oldest and most protective "Public Beach" laws. California's current protection of beach access as a public right dates back to 1972 with the formation of the California Coastal Commission. Texas' Open Beaches Act (TOBA) was passed in 1959, seventeen years before promulgation of the similar California Coastal Act.
TOBA is a sweeping law that prohibits any private or public entity from owning beach access. Likewise, it restricts the State, Citizens, and Companies from restricting beach access, with only a narrow set of temporary exemptions, primarily for public safety purposes. The law is wildly popular; in 2009, 75% of Texas voters approved adding TOBA to the State's constitution.
In 2013, the State was angling to secure SpaceX as a recipient of Corporate welfare for a new launch site. But SpaceX needed beach access and TOBA was far too restrictive to proceed. TOBA, now part of the State Constitution, cannot be reworked or revoked by the Legislature. So, instead House Bill 3459 was crafted, explicitly granting a narrow carveout for beach closures for exactly the type of short term closures that SpaceX said they needed at the time to launch rockets from Boca Chica. Approval for a small launch site was ultimately approved in 2015 and the company has realized tens of millions in subsidies and tax breaks since, with plenty more on the horizon.
In 2019, Texas entered the Tesla Gigafactory sweepstakes, with Governor Greg Abbott, along with numerous legislators and the City of Austin, lobbying for the right to give money to Tesla for the "Everything is Bigger in Texas" Car and Battery Factory. Texas won the grand prize in exchange for an eye-watering $1 billion per year tax break once the factory is up and running.
This is the Ante. Texas seeded the pot with laws and cold hard cash. Now the cards are dealt and we can watch the game unfold.
SpaceX has been busy in South Texas for years expanding the launch site, located on a postage stamp-sized plot of land surrounded by a unique and fragile habitat. This land is also a refuge for numerous endangered species. The grand designs for SpaceX's Starbase have expanded well beyond the 2015 proposal for a small commercial launch site. Musk and SpaceX charged ahead with transforming it into a Rocket Factory and testing grounds before securing the regulatory approval required to do such a thing. After blowing up a colossal test rocket in 2021 and broadcasting debris and fireballs across the sensitive habitat, the FAA begrudgingly told them to cut it out until they got approval.
Readers of this Substack are well aware that I've covered, in exhausting detail, SpaceX's deceptive, illegal and absurd attempt to speedrun past foundational environmental rules to secure this authorization. Read up if you're so inclined. But for the sake of this post, just know that countless politicians in Texas, from County Judges up to US Senators have lobbied, interfered and legislated on behalf of Musk and SpaceX.
This brings us to The Flop. In Texas Hold' Em, there are five cards face down on the table available to all players. After the first round of betting, The Flop arrives. Three of the table cards are flipped and each player learns a lot about what their chances are to win. The drama continues to ratchet up to the end, provided everyone hasn't folded yet but The Flop starts things out with a splash.
In October 2021, with Starbase's approval in regulatory limbo and GigaTexas nearing the completion of construction, Musk announced he was personally moving from California to Texas. And he was bringing all of his companies' headquarters with him. After continuously ranting about California officials from the onset of the Covid-19 pandemic in 2020, going so far as to call officials who ordered a public health shutdown of the Fremont Auto Factory "fascists," this was hardly a huge surprise.
But Musk bet big on Texas. Abbott and the nation's most unpleasant Senator Ted Cruz were guests at GigaTexas' grand opening. The loudest members of the Republican party, nationally and in Texas heap praise on him. And as I covered last week, the man who has an opinion about everything refused to condemn state officials as they ratcheted up a bizarre and likely unconstitutional culture war. Musk, who had always been savvy enough to not overtly insult the large liberal cross-section of Tesla owners, decided he was Team GOP.
And that brings us to The Turn, often the most pivotal moment of a Poker hand. As regulatory pressures bubbled up at SpaceX and on Tesla's self-driving software, Musk sold a ton of Tesla Stock at nearly the peak of $1200. Tech stocks started acting skittish. The war in Ukraine and Covid's resurgence in China started playing hell on supply chains and on manufacturing operations in Tesla's only profitable entity in Shanghai. SpaceX kept falling behind on Starship operations; the Venture Capital money spigot slowed to a drip just as the company needed to pass the donation hat around at an eye-watering valuation of over $120 billion (50x trailing revenues).
The card you're dealt is terrible for your prospects of winning, so what is the world's wealthiest gambler to do? Well, announce you're "ALL IN" on supporting the GOP's culture war, of course. Musk declared his intention to purchase Twitter, seemingly to own the libs, who are cancel culturing everyone's God granted freedom of speech. This deal played perfectly to cultural conservatives who are convinced that American Social Media companies are controlled by Communists. This, of course, is not true, but Texas' recent bill to (paradoxically) restrict the Freedom of Speech of private social media companies plays up this narrative perfectly.
Musk used the deal as pretext to dump more Tesla shares, but that 45 billion dollar liability is real, and it requires cold hard cash. Tech stocks, including Tesla's, continued to crash. Fellow social media companies Facebook and Snap signaled weakness ahead. But Musk, having signed a binding contract to purchase Twitter, is stuck with the same unfixed liability. A Sword of Demacales that could force him to spend the bulk of his massive but shrinking paper fortune on a company historically unable to make real profits.
With no real contractual outs, Musk floated the idea, with no supporting evidence, that Twitter misrepresented the total number of Bot and Spam accounts. He clearly has buyer's remorse and wants out of his very dumb decision. Every securities and M&A lawyer who wrote on the topic explained in excruciating detail that his legal argument was hot garbage, but that didn't stop his lawyers from writing a letter yesterday threatening to walk away from the deal (which he cannot) over the "bot issue."
And that brings us to the final card.
Going down the River symbolizes the end, and in Texas Hold' Em, The River is the final card before bettors have to reveal their hands.
In a stunning and brazen move, not 8 hours after Musk's letter to Twitter was revealed, Texas Attorney General Ken Paxton announced that he would be investigating Twitter for "potentially misleading Texans on the number of its "bot" users." Further, the AG announcement echoes Musk’ss gripes to a tee, stating that "Bot accounts can not only reduce the quality of users' experience on the platform but may also inflate the value of the company and the costs of doing business with it."
Texas does not have jurisdiction to meaningfully regulate Twitter's business, which almost exclusively occurs across State and National borders. There is no other way to look at this besides as a personal favor to Musk. Adding insult, Texas is still reeling from the slaughter of 19 children and two teachers at a school in Uvalde. The State's GOP machine is facing backlash to its management and response to the tragedy. Pleasing Texas's pet billionaire shouldn't be a priority, but here we are.
Paxton is easily the most corrupt public official in the country. He's used his position to indefinitely delay a criminal trial associated with a seven-year-old Department of Justice subpoena for securities fraud. Last week, South Texas indie publication Trucha RGV reported that SpaceX records in Boca Chica are exempt from routine Public Records procedures. Any records request, no matter how mundane, must be approved by Paxton's office. ExxonMobile would kill for such a deal, but this appears to be a Musk-exclusive carveout.
What about the Public Beaches law? SpaceX, with help from their enablers in the County and State, has well exceeded the 2013 TOBA exception for launch closures. The company has an open-ended authorization to close a public beach for any reason. With zero launches in 2022, SpaceX has locked the public out from the beach for more than 300 hours year to date. Who's responsible for enforcing this law? Paxton is, of course, along with Texas General Land Office Commissioner George P Bush, who coincidentally lost the GOP primary for Attorney General to Paxton last month.
Paxton's transparent abuse of the power of the State to satisfy the whims of Musk is disgusting and shocking. It's also a scary time to think about how the United States isn't just en route to becoming an authoritarian oligarchy, we're already there.
Paxton's wanton abuse for the law lays bare so many failures, in regulation and enrofcement, in the rule of law and in the foundational belief of rule by and for the people. But his investigation will accomplish nothing practically. Musk is on the hook for a deal he does not want to consummate. It might functionally break his economic leverage in the future.
I still don't know what two cards Musk has in the hole. We're about to find out soon. Maybe Musk's lucky run at the casino is finally over. I suspect he's holding a 10-5 offsuit and about to bust, but with his slippery history of getting out of fraudulent jams of his own making, I certainly wouldn't bet on it.
Not that I’m rooting for Elon, but he seems to always be dealt pocket aces, every single hand...