#379: Google And American Airlines Show That AI Can Reduce Aviation’s Impact On The Climate, & More

Condensation trails, or contrails, are the white streaking clouds that trail airplanes in flight and can persist as cirrus clouds[1] for minutes or hours. Trapping heat in the atmosphere, contrails account for 35% of aviation’s[2] impact on the atmosphere when planes fly through humid regions.

In response, Google trained an AI algorithm to predict where contrails are likely to form and to suggest alternative routes. Armed with the algorithm, American Airlines flew 70 test flights in six months and found that alternate routes reduced contrails by 54% and increased fuel consumption by only ~2%.[3]

According to Google, “contrail avoidance costs could be in the range of $5-25/ton CO2e, which would make it one of the most cost-effective climate solutions.”[4] Further, in our view, the algorithm could integrate into existing flight operations without significant upfront costs.

Last Monday, PayPal launched[5] its US dollar-backed stablecoin, PayPal USD (PYUSD). Operating on the Ethereum blockchain, PYUSD is pegged 1:1 with the dollar and offers a permissionless “crypto-native” representation of fiat[6] money for global use cases.

Stablecoins have distinct advantages in bridging the gap between closed and open ecosystems. In a closed-loop system, transactions require both parties to have an account, which limits flexibility and access. Alternatively, stablecoins operate in open ecosystems and can transact across different networks and platforms, enabling interoperability and a broad-based user base. As a result, stablecoins foster more inclusive financial participation, eliminate barriers to entry, and facilitate seamless integration with various payment channels.

As PayPal positions its user base to ramp into the crypto world, PYUSD potentially can generate sizable yields from stablecoin reserves in an environment of high interest rates. Unclear, however, is whether its users will reap advantages with PYUSD relative to competitors like Circle’s USDC. In addition, some question[7] PayPal’s decision to launch PYUSD on Ethereum’s mainnet, with transaction costs higher than the scaling solutions like Arbitrum on which USDC is available natively.[8]

Amid a significant executive management transition, including the impending departure of CEO, Dan Schulman,[9] PYUSD’s positioning against established players like USDC could face significant challenges. While bolstering the legitimacy of digital assets, PYUSD’s success in the face of competitive challenges remains to be seen.

Last Tuesday, PENN Entertainment entered[10] a 10-year partnership with ESPN to rebrand its “Barstool Sportsbook” as “ESPN Bet,” starting this fall. PENN will have the exclusive right for the next ten years to the ESPN Bet trademark for sports betting in the United States, followed by another ten years with mutual agreement. Operated by PENN, ESPN Bet should benefit from exclusive promotions by ESPN, including programming, content, and talent. Over the next ten years, PENN will pay ESPN $1.5 billion in cash and $500 million in warrants—an offer that The Walt Disney Company said surpassed competitors’[11] bids significantly.

With ESPN as its new media partner, PENN sold[12] Barstool Sports back to its founder, David Portnoy, for just one dollar in exchange for certain non-compete and restrictive covenants, including a right to 50% of the gross proceeds received by Portnoy in any subsequent sale of Barstool. In a two-part transaction in 2020 and early 2023, PENN purchased[13] Barstool for more than $550 million. Despite Barstool’s eminence as a standalone media company, PENN’s Barstool Sportsbook failed to capture meaningful market share in US sports betting, as measured by share of consumer deposits, as shown n the chart below. In June 2023, Barstool Sportsbook had captured only 4% share, compared to 34% and 30% for DraftKings and FanDuel, respectively.

If PENN could not win market share with Barstool, how will it fare with ESPN, a legacy media property battling a multi-year decline in market share? Since 2010 when it peaked at 100 million, the number of ESPN cable subscribers has declined 3% at an annual rate to 71 million, as shown below.

As it adapts to streaming, how will ESPN protect its content library and sports franchise from big tech? Specifically, how will it leverage its distribution and scale to market ESPN Bet/PENN and compete against the other sportsbook operators? While no company has been able to penetrate the DraftKings-FanDuel duopoly, could ESPN Bet be the first? We would be surprised.

[1] Wikipedia. 2023. “Cirrus Cloud.” https://en.wikipedia.org/wiki/Cirrus_cloud.
[2] Google Research. 2023. “Project Contrails.” https://sites.research.google/contrails/.
[3] Google Research. 2023. “Project Contrails.” https://sites.research.google/contrails/.
[4] Google Research. 2023. “Project Contrails.” https://sites.research.google/contrails/.
[5] PayPal. 2023a. “PayPal Launches U.S. dollar Stablecoin.” https://newsroom.paypal-corp.com/2023-08-07-PayPal-Launches-U-S-Dollar-Stablecoin.
[6] “Fiat money” is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. See Chen, J. 2023. “Fiat Money: What It Is, How It Works, Example, Pros & Cons.“ Investopedia. https://www.investopedia.com/terms/f/fiatmoney.asp.
[7] Watson, R.T. 2023. “PayPal’s stablecoin faces questions about usefulness, gas fees and old tech.” The Block. https://www.theblock.co/post/243647/paypal-stablecoin.
[8] Crooks, N. 2023. “Circle says it’s launching USDC natively on Arbitrum.” The Bloch. https://www.theblock.co/post/232867/circle-says-its-launching-usdc-natively-on-arbitrum.
[9] PayPal. 2023b. “President and CEO Dan Schulman Announces Intention to Retire From PayPal at Year-End.” https://newsroom.paypal-corp.com/2023-02-09-President-and-CEO-Dan-Schulman-Announces-Intention-to-Retire-from-PayPal-at-Year-End.
[10] PENN Entertainment. 2023. “PENN Entertainment and ESPN Enter into Long-Term Exclusive Strategic Alliance for U.S. Online Sports Betting.” https://investors.pennentertainment.com/news-releases/news-release-details/penn-entertainment-and-espn-enter-long-term-exclusive-strategic.
[11] Motley Fool Transcribing. 2023. “Walt Disney (DIS) Q3 2023 Earnings Call Transcript.” https://www.fool.com/earnings/call-transcripts/2023/08/09/walt-disney-dis-q3-2023-earnings-call-transcript/.
[12] Confino, P. 2023. “Dave Portnoy buys back Barstool Sports for just $1, while Penn Entertainment spends $1.5 billion on ESPN partnership called the ‘white whale’ of sports betting deals.” Fortune. https://fortune.com/2023/08/09/penn-barstool-espn-dave-portnoy-sports-betting/.
[13] Bloomberg. 2023. “ESPN Is Getting Into Sports Betting With Penn Entertainment.” https://www.bloomberg.com/news/articles/2023-08-08/espn-signs-sports-betting-deal-with-penn-entertainment?srnd=premium&sref=1kJVNqnU#xj4y7vzkg.