Joey and Phoebe's 'Deal with Santa' Explanation

Question

In Friends Season 5 Episode 4 (The One Where Phoebe hates PBS):

In one scene Joey says to Phoebe "And you know the Deal with Santa, right?"

After some time the following conversation happens between Joey and Phoebe:

Phoebe: Hey, Joey, when you said the deal with Santa Clause, you meant?

Joey: That he doesn't exist.

Phoebe: Right. (She turns and opens her eyes in shock.)

Why does Phoebe react that way? What is the deal about?

Answer 1

In this context, "the deal about Santa" is an expression that means "the real story about Santa." And the real story about Santa is that he does not exist.

So the joke is that Phoebe made it that far into adulthood before realizing the real story about Santa, which is something most people figure out as children.

Answer 2

Phoebe had a very unusual upbringing, resulting in a somewhat unusual personality as an adult. Her biological dad left the family when she was an infant, her stepfather was extremely poor and later ended up in prison and her stepmother was a drug dealer who killed herself, leading Phoebe to live in the streets at a young age without proper education.

So although she's usually the most down to earth among the group because of her humble beginnings and street smarts, she has several gaps in her knowledge and had adopted strange and sometimes childish beliefs, like:

• Believing a cat is the reincarnation of her dead stepmother;
• Thinking the Apollo moon landing was fake;
• Naively believing her grandmother that Albert Einstein is her grandfather;
• Doubting that gravity exists.

It's also implied that she hears voices in her head. Phoebe's traumatic childhood shaped who she is, and although believing in Santa until this point in her life is a bit of a stretch (and owes to the gradual Flanderization of the Friends characters), it's not that out of character.