TOM HICKS IS ONE OF THE GOOD GUYS-OR SO I’M TOLD- easygoing and unpretentious, straight-shooting and fun-loving, a kinder, gentler corporate raider. Friends and foes alike claim that despite his reputation as one of the hottest leveraged buyout (LBO) specialists in the country, an empire builder who collects corporations the way other people do dust, he still manages to keep his ego in check. But just now, standing in the high-toned luxury of his Crescent office, posing beside his cluttered antique desk for an in-your-face photographer, Tom Hicks looks pissed.
“Now this is supposed to be a casual shot,” says the effusive photographer. “Do you think you can roll up your sleeves?”
Hicks looks at his pin-striped shirt. “I never roll up my sleeves.”
“Maybe you could loosen your tie a bit?”
“I never undo my tie.”
The photographer grows anxious. He doesn’t know that Hicks is a tad jet-lagged after returning last night from Venezuela, where he is launching plans for his Dallas firm. Hicks, Muse, Tate, and Furst, to become one of the largest investors in Latin America. Still, Hicks hardly seems intimidating. Despite his 6-foot-3-inch presence, the lines in his ruddy 51 -year-old face look soft, almost cherubic, and the dimple in his chin doesn’t exactly shout corporate menace.
“I do usually take off my jacket,” Hicks finally offers as he eases himself out of his.
This act of cooperation goes a long way toward mollifying the photographer, Then I begin my own aggravation, searching his office for signs that might reveal character: a wedding photo of his wife, numerous pictures of his six children, a bottle of Dr Pepper-a homage to an early purchase that put him on the LBO map. I glance at his bookshelf: Golf is a Game of Confidence, Die Rich and Tax Free, Major League Losers: The real cost of sports and who’s paying for it.
Hicks worries out loud in his deep, mellifluous voice whether there is anything he doesn’t want me\e to see.
“Too late,” say, writing it down.
The photographer is at it again, having worked himself into a full-court sweat. He directs Hicks to a sit behind the desk, to lean against the desk, to place one knee on the desk. “Let’s g ) back to your smile. That’s working bette for me.”
Hicks barely registers a grin.
“Looks gre;it! Just l0 more and I’m out of your life for good.”
“Ten more!” Hicks mouths playfully.
By now I’m amazed at his patience. Why would anyone submit to this level of privacy invasion, open himself up to the scrutiny of a pestering press? Does it have to do with Hicks being on the verge of closing one of the biggest deals of his life-a $ 1.4 billion TV buyout which includes the purchase of two Dallas stations, KXAS-Channel 5 and KXTX-Channel 39?
Or maybe it s that Hicks Muse now owns the largest radio company in America, controlling over 400 stations across the country. Or perhaps it’s that Hicks himself personifies the American dream: a self-made man who started with nothing and made a fortune by investing other people’s money.
No, the reason for this kind of public exposure has more to do with a game than a business. In 1995, Tom Hicks entered into a sacred contract with the sports fans of Dallas. He purchased the Dallas Stars hockey learn, and His life will never be the same. Gone is the private life he cherished. Gone is the absolute right to say “no comment” about a delicate negotiation, a possible trade, an arena deal. Tom Hicks is a public figure now; the dance is different now-the public has a right to know. Will the lessons he learned in the business world serve him well in the wide world of sports? Will he stumble over the building of a new arena, the management of his new franchise, Ross Perot Jr., Dallas City Hall? Can Tom Hicks educate himself quickly enough to avoid the ego-infested waters of sports ownership where one can become a hero or a goat, a Clint Murchison or a Jerry Jones, a civic leader or a public pariah-and all in the same day?
WHEN I THINK OF THE HIGH-RISK, HIGH-yield world of the leveraged buyout artist–which thankfully is not too often-I think of Richard Gere in the movie “Pretty Woman.” Gere plays an obscenely rich corporate raider who, when not trying to remake Julia Roberts from prostitute into Cinderella, is trying to unmake Ralph Bellamy, whose vulnerable business is under assault by Gere’s hostile takeover attempt. Gere wants to sell off the corporation’s assets, lay off its employees, and pocket a big chunk of change. Producing nothing, he is an icon of ’80s greed who can only be redeemed by the love of a good woman. Or in this case a bad woman.
Tom Hicks tells me that my impressions about what he does are pure fiction. In his 20 years of doing leveraged buyouts (financing the acquisition of corporations largely through debt), he has never engaged in a hostile takeover. His first rule of buyouts: Do only friendly deals-those where the existing owners want to sell to him, and the existing management often wants to partner with him in building the business.
Hicks is a relationship guy-he forms them, develops them, keeps them. His oldest friends are some of his closest. His oldest investors are some of his richest. His oldest friends are some of his oldest investors. Networking these relationships is the theme that runs through his life.
Thomas Ollis Hicks wasn’t born to money, exactly. His middle-class parents seemed typical of the times. His mom was as loving as his dad was demanding. His father was a media rep whose entrepreneurial zeal kept his family moving from Houston to Dallas to Port Arthur. In 1959, his father bought a small Port Arthur radio station-an LBO of sorts, says Hicks, since his father borrowed money for the transaction from a silent partner. The indebtedness worried his dad, who often couldn’t sleep at night. “Life is a series of 90-day notes,” he told Tom ai id his three brothers.
Still, radio ownership had its perks. Tradeouts foi media buys brought the Hicks family the trappings of wealth. But with Port Arthur a blue-collar oil refinery town, Tom gr;w uncomfortable with his daddy’s mon;y. “He drove a Lincoln Continental, aid 1 made him drop me off three blocks from school so none of the other kids could see.” recalls Hicks, who learned a hard lesson about social relationships early on: “Either you fit in or you got your butt kicked.”
It was his dad’s radio station that grew his confidence and made him polished beyond his years. A program director taught him how to standardize his speech, taking the hick out of Hicks. “I learned to project and speak from my diaphragm,” he explains. He became deejay Steve King, the Weekend Wonder Boy, spinning Top 40 tunes and entering a world he carries on a love affair with to this day.
In 1964, when Tom Hicks showed up at the University of Texas, he became something of an overnight success. “He came with lots of enthusiasm, lots of charisma,” says close friend and fraternity brother Bruce Snitzer. “He already had the ability to think big.”
At times he seemed insensitive. “Tom could be rough on the same people he considered his friends,” says Snitzer. And yet he had an unerring ability to read people, to know what they needed.
Although Hicks’ father dreamed that his four sons would help him build a family radio business. Hicks would have no part of it. After college, he got a job with Continental Illinois Bank in Chicago. Young associates in the credit department were asked to research what new activities banks could perform under pending federal legislation, and someone handed him a folder on venture capital-the seed money provided by institutions to make equity investments in fledgling companies. After an intensive three-month study, Tom knew more about investment banking than many bank presidents in the country.
In the fall of 1970, he parlayed his expertise into a job in New York with the prestigious commercial banking house, Morgan Guaranty Trust. At the time, the “white shoe” firm was the pinnacle of Wall Street culture, and only the best and the brightest were asked to join. With 22 other trainees. Hicks was schooled in the art of financial wizardry and then rewarded with a slot in Morgan’s venture capital division.
Hicks felt comfortable in Manhattan. Over a dozen of his old UT friends became baby bulls of Wall Street, affectionately referring to themselves as the “Texas Mafia.” Hicks would later mine this web of joined-at-the-hip Texas exes for future deals and access to contacts.
Longhorn football games were cause for celebration and a reason for the Texas Mafia to get together and party. Sports were important to Hicks. He followed teams, players, stats–the same as he might a new company. Friends say that even as a kid, he knew the attendance capacity of every major college stadium in the United States.
After three years in New York, Hicks’ thoughts turned to Texas. In 1974, he secured a position with the venture capital arm of First National Bank in Dallas. Settling in the land of the entrepreneur, with his well-heeled credentials and his unbounded optimism, Tom Hicks was convinced he could do no wrong.
THE HIGH STAKES GAME OF THE LEVER-aged buyout artist is not for the faint of heart-particularly the way Tom Hicks plays it. An undervalued company must Ik bought for the right price and have enough cash flow to support a certain level of debt. But it’s the way the debt is structured that makes an LBO different from just any old purchase. Senior debt-about 50 to 60 percent of the deal-comes from big-league lenders like Citicorp and Chase Manhattan. Subordinate debt is the tricky part, often coming from the sale of junk bonds- obligations of the acquired corporation. The rest of the capital structure is equity, which an LBO firm must raise from private and institutional investors who expect glowing returns in say, five years, after the newly acquired business has been built up and sold. In this way, the LBO firm itself can own and run a major corporation by using other people’s money.
I know this stuff because Tom Hicks told me so. I caught up with him at the Hotel Valencia in La Jolla, Calif., the summer playground for wealthy Texans trying to escape the hot Texas sun. Hicks has two homes here, He wears no tie, no jacket. Just a green polo shirt, a pair of chinos, and Birkenstocks. Not surprisingly, he is much more relaxed here than at our photo shoot.
“So how much do I have to bring to the table if I want to invest in one of your deals?”
“At least 10 million,” he says without flinching.
I flinch instead. “I suppose I would be in good company.”
He rattles off a list of names which includes Ray and Lamar Hunt. Don Carter. Harold Simmons, millionaires all. Things haven’t always been this stellar. He tells me about his early years in Dallas, when the term “leveraged buyout” hadn’t even been invented. “We just called them deals,” says Hicks, who had his share of bad ones at First National Bank. After three years there. Hicks joined forces with Dallas businessman Don Ingram, though several of his friends warned him against doing so.
At Summit Partners, Ingram and Hicks had a series of small LBO successes in radio and manufacturing through 1981. But they borrowed money on their personal guarantees to speculate in oil and gas exploration, and when oil prices cratered in the early ’80s, the result spelled financial disaster.
Hicks had to rely on Ingram to keep the partnership afloat. In exchange for making payments on I licks’ debts, Ingram insisted that Hicks sur ender or pledge many of his partnership in:erests to him. Hicks hoped to continue tie partnership but in April 1983, Ingram grew unhappy with their arrangement and terminated it.
Lawsuits followed and four years of heated litigation ended in an undisclosed settlement. But Hicks nearly went broke. “I had to sell my house and do a workout on all my debts.” The lessons Hicks learned were clear: Be careful whom you partner with, and only use other people’s money.
On the brink of financial ruin. Hicks was humbled for the first time in his adult life. According to friends, his wife and four kids felt the brunt of things, his marriage eventually unraveling in the wake of financial stress. “Hitting serious bumps and having your marriage fall apart are sobering,” says Snitzer. “If you have any growth in you- that brings it out.”
By July 1984, Hicks had begun to regroup, forming a small LBO firm with one secretary, no money, and a talented Cleveland lawyer named Bobby Haas. It was a unification of opposites: Hicks was the outside man-a well-connected South-em gentleman. Haas was the inside guy- a detail-driven, hardball negotiator.
In March 1985, Hicks learned that Dr Pepper was selling its bottling operations. Jim Turner, the chief of all Dr Pepper bottling plants, was now planning on buying the Dallas branch but needed an equity partner. Hicks and Haas met with Turner, who wowed them with his know-how, and within weeks the partners had raised $95 million and closed the deal. Neither Hicks nor Haas knew a thing about the soft drink business.
The frontal assault Hicks and Haas next made on the soft drink industry has become the stuff of LBO legend. Within 20 months, they had bought A&W Root Beer ($72 million), Dr Pepper itself ($416 million), and 7-Up ($240 million)-trailing only Coca-Cola and Pepsi in retail soft drink sales. They took A&W public in 1987, merged Dr Pepper with 7-Up in 1988, and ultimately sold it to Cadbury Schweppes in 1995. The return for initial Hicks and Haas investors (if they held onto their stock) was 24 times their money. Hicks retained his stock, making nearly $30 million for his efforts.
By 1988, Hicks and Haas had scored big in radio (buying, among others. Hicks’ dad’s old station), cable, dental and laboratory products, floor cleaning equipment, and doing more than $4 billion dollars in deals. Through their successes, they developed an investment philosophy. They sought reasonably priced companies, leaders in well-defined niche markets where there was strong growth potential. No commodities risk, no high techs, no start ups, no companies with labor- or capital-intensive headaches, please. Their strategy was to “buy and build” core companies in markets where value could be added by the acquisition of complementary businesses (7-Up to Dr Pepper). They wanted strong manager/partners who would run the business with no interference from them so they could go chase the next deal.
But Hicks and Haas weren’t the only ones making a killing. The country was breaking out of its ’70s malaise and getting back its competitive edge. Companies were deconglomerating, spinning off underper-forming divisions and keeping only their core businesses. The hostile corporate raiders of the ’80s were on the attack.
Enter Michael Milken and his junk bond corporate raiders, who taught Wall Street how to leverage takeovers with almost no equity. Suddenly the market had lost its discipline; prices were on fire. Then came the S&L crisis, the ’ 89 junk bond market crash, and the bottom fell out of the LBO business. Michael Milken was a pariah. How could Hicks and Haas possibly survive?
But they had seen the crash coming. By 1988, they had sold most of their holdings, eventually earning a return to their investors of nearly 300 percent. Still, the fast lane had taken its toll on the pair, who ended their partnership in 1989. Publicly, they claimed it was an amicable separation, a difference in investment philosophies. But privately, another story was told: -Accusations flew that Hicks had lost his zest for the deal. Haas was charged with ego inflation. “We both knew we were opposite people.” says Hicks. “Five years was long enough.”
Hicks wasted no time in quashing all speculation about his intentions. He jumped back into the game by partnering with John Muse, an investment banker with Prudential Bache, and eventually Charles Tate, one of the original Texas Mafia.
But times had changed in the early 90s. Although companies could be picked up lor cheap, money was drum-tight. Banks, reeling from the recession, were demanding that LBO firms increase their equity investments to between 20 and 25 percent of the capital structure. Haas pulled in his horns. But Hicks envisioned his new firm as an institution and decided to build a standing equity pool, getting investors to ante up on the strength of his good name rather than the merits of any one deal.
With a credit drought in the country, he couldn’t have picked a worse time. Hicks scoured the nation looking for money, and before he was finished, lie had raised over $255 million-and that was just for his first equity fund.
Over the next seven years, Hicks, Muse, Tate, and Furst grew into one of the premier LBO firms in the country. Employing the same “buy and build” philosophy as Hicks and Haas, the company has done nearly 140 deals totaling over $24 billion. Hicks Muse captured business headlines in August by announcing its aggressive foray into television, a $1.4 billion deal which included the purchase of eight network affiliates. Ten days later, Hicks Muse, in partnership with Hicks’ brother Steve, purchased SFX Broadcasting for over $2 billion, which made it the owner of the largest radio company in the country.
Tom Hicks himself is believed to be one of the richest men in Texas. (His 1994 estimated net worth was $150 million.) He is vice chancellor of the board of regents of the entire University of Texas system and has revamped its mammoth endowment. When I asked him how many companies he either owns or controls, he replied frankly, “I don’t know.”
Still, Hicks has paid a high price for his success. Business and divorce left him a part-time father. “My kids are very important to me,” he says. “But a blended family is not an easy thing to pull off.” The children from his first marriage suffered from his absence; several needed a guiding hand when he wasn’t there to provide it. “Highland Park can be a tough place to raise kids,” he says. “I’ve discovered a great secret: Culver Military Academy.”
Even his marriage to his current wife, Cinda, in 1990 did little to slow his pace. “There is a huge momentum factor, and she understands this,” explains Hicks. “Wall Street wants to do business with us. and they bring us more and more ideas.”
Yet with the birth of two more children, Hicks has tried to strike a new balance. Many is the evening when he has dinner at home only to be whisked away by his Lear Jet to New York after he tucks his kids into bed. A recent restructuring of Hicks Muse has freed up more time for Hicks after he learned from a corporate psychologisl that he had to delegate more responsibility to his partners. “Too many decisions were having to go through my desk,” he says.
Despite an embarrassment of riches and a near-magical ability to partner with the companies he acquired, Tom Hicks wanted more. He always longed to own a s]wrts franchise, though his friends had tried to discourage him: Why buy a high-profile business where owners are accused of using their teams to fulfill their own frustrated jock fantasies? Why purchase an entity that’s charged with more emotion than some small wars? Why buy a concern where the entire culture of a city will second-guess yonr every move and take collective satisfaction in saying “I told you so” when you mare the wrong one?
Why buy a sports team? Tom Hicks had his reasons.
In 1994, TOM HICKS HEARD THROUGH AN investment banker that Dallas Mavericks owner Don Carter might be interested in selling his basketball franchise. Although Hicks learned the Mavericks weren’t for sale. Carter was interested in selling his hugely successful family-run business. Home Interiors and Gifts. A leveraged buyout was struck and Hicks Muse agreed to pay more than $1 billion for Home Interiors. But during the negotiation process, Carter grew uncomfortable with the terms of the sale.
“Don is a very loyal guy, and he wanted to protect a lot of his family,” recalls Hicks. “Anytime you sell a business, it is difficult to provide the same level of protection to everybody.” Carter backed out of the deal but with no hard feelings from Hicks. The process, however, did strain Hicks’ relationship with Don’s son, Ron Carter, who was also the president of the Mavericks.
By the spring of 1995, Hicks’ fancy had turned to hockey. It was no secret that irascible Dallas Stars owner Norm Green was in trouble. When he moved his losing Minnesota North Stars to Dallas in 1993, Green received a hero’s welcome. A hockey game at Reunion Arena became the hottest ticket in town. Still, a management lockout of hockey players in 1994 crippled the Stars’ cash flow when the season was three months late getting started. Green needed a quick infusion of funds, a financial backer who would share ownership but let him stay in control.
Jeffrey Marcus, the owner of Marcus Cable, was a friend of both Green and Tom Hicks and got them together to discuss a deal. But Hicks backed away when he learned that a group led by Ross Perot Jr. was interested in partnering with Green. Perot’s first lieutenant, Frank Zaccanelli, a frustrated jock himself and the point man on the deal, worked furiously to make it happen. A purchase agreement was signed by the parties, but Perot pulled out at the last minute, much to Zaccanelli’s regret.
After Don Carter passed on the Stars, Green phoned Hicks, who was still ready and willing to talk. Zaccanelli, who felt obliged to help Green, gave Hicks his due diligence-the legal and financial research he had already accumulated about the team.
In early July, Hicks made Green an offer: For a $40 million investment, he wanted a 50 percent interest in the team and shared control. Several days later. Green called back. “He had decided to go in a different direction,” says Hicks. That direction was John Spano.
Few people in Dallas had ever heard of John Spano, a self-proclaimed millionaire with a trust fund of offshore assets that never seemed to find their way onshore. “There is a certain intelligence that surrounds a deal,” says Hicks, “and I was told by a friend that Spano didn’t have the willpower to close.” No one knew he also didn’t have the money-not until Spano was arrested last July in connection with his aborted purchase of the New York Islanders hockey team. “We didn’t just dodge a bullet,” says Stars president Jim Lites. “We dodged a rocket.”
In December 1995, amid fears that Green couldn’t make payroll, Hicks re-entered the negotiations. “My condition for doing so was that Norm Green would be out,” says Hicks. “I couldn’t be partners with him. He was part of the problem.”
Hicks did his own due diligence this time. He knew nothing about hockey, admitted as much, but he had known nothing about Dr Pepper or electronic connectors, either. Still, Hicks did the unusual- put up his own money, even leveraged the transaction by borrowing half the purchase price from NationsBank. Although this wasn’t a true LBO, Hicks applied much of his same “buy and build” philosophy:
Price: Sports teams don’t make sense on paper, says Hicks, because their cash Row seldom justifies die purchase. But they have “intrinsic franchise value” which in this case was set by the marketplace at $84 million. Hicks felt his downside was protected; franchises rarely lose value.
Strong growth potential: Hockey is the fastest growing sport in the country with good demographics among the young and the middle class. Hockey has everything that people want from a sport today: violence, speed, grace, power, athleticism- and violence.
Market leader: Although the Stars have never been market leaders (no Stanley Cup), Dallas is one of the top sports markets in the country. What’s more, its fans are forgiving if they can sense the team is headed in a winning direction. Witness the Texas Rangers.
Not labor intensive: Players go on strike, want more money, get arrested. Even worse, they have agents. But Hicks got lucky, purchasing the team after the management lockout and a new collective bargaining agreement which gave hockey restricted free agency. Teams have more stability since players are restricted from becoming free agents for the first 10 years of their professional careers.
Strong management team: Norm Green did one thing right. He put in place a world-class management team: Jim Lites, who had managed the Detroit Red Wings hockey team for 11 years, was president and ran the business side; Bob Gainey, general manager and head coach, is a somber defensive specialist whose five Stanley Cup rings as a player for the Montreal Canadians made him a living legend in that city.
As always, Hicks had his people do an evaluation of management and came away impressed. Lites gave Hicks his hockey education; they sat next to each other at games and talked players, strategy, rules. “Being a jock is Tom’s orientation,” says Lites. “He’s a quick study.”
Hicks opened his deep pockets to bring stability to an organization that was weak from worry. On the ice, the team was having its worst slide in years. Hicks had every confidence in Gainey’s abilities as GM, but Gainey had lost confidence in himself as head coach. He told Hicks the players weren’t listening to him anymore, said he wanted the team to take a new direction. Gainey fired himself as head coach and hired Ken Hitchcock, coach of the Stars minor league team. Hitchcock was more passionate than Gainey, more offensive-minded, but he didn’t change the physics of the team until the ’96-’97 season, when the Stars made the playoffs and Hitchcock was nominated for NHL Coach of the Year.
Buy and Build: Even with a winning season, hockey is a losing proposition at Reunion Arena. (Hicks lost S10 million in 1997.) He claims he never would have bought the Stars unless a new arena was on the horizon, hopefully in downtown Dallas. But much depended on the Dallas City Council and how much of the city’s resources it would be willing to commit.
“Sports franchises escalate in value substantially when they get into a state-of-the-art arena,” says Hicks. What Reunion lacked was 200-plus skyboxes to bring another revenue stream to team owners. Don Carter had been dickering with the city since 1993, and now that the Stars were no longer financially hamstrung, Hicks figured the timing was right to make a deal.
Besides the real estate play. Hicks envisioned another means of building value for his team: cable revenues. “The biggest driver in sports today is the ability to use sports programming to get cable subscribers,” says Hicks. That’s the reason Jeff Marcus of Marcus Cable got involved when Hicks first approached Norm Green. ’’My interest,” explains Marcus, “was to have access to the Stars games via our cable company. But the numbers just didn’t make sense and it didn’t happen.” If Hicks could convince the Mavericks and possibly the Rangers to join him in operating a regional sports channel, there could be tremendous value created for all concerned.
In April 1996, Hicks got his opportunity. He learned that Don Carter was interested in selling the Dallas Mavericks. Again.
FRANK ZACCANELLI CLAIMS THE STAGE was set for Ross Perot Jr. to buy the Mavericks months before Tom Hicks decided to join in the bidding.
But Perot had little passion for basketball and remained tepid about the purchase. If not for the feverish boosterism of Zaccanelli, who loved the game, Perot might not have ever made it to the bargaining table. Zaccanelli enticed Perot with the prospect of buying into the biggest real estate play in downtown Dallas in decades: a new arena.
Tom Hicks needed no such encouragement. Owning both teams under a new roof fit neatly into his “buy and build” strategy. He contacted Carter, who let it be known publicly that he would rather sell to someone other than Hicks. Perot was close friends with Ron Carter, who apparently still harbored a grudge against Hicks.
On April 12,1996, Hicks offered Carter $125 million to buy the Mavericks. Carter told Hicks that Perot had backed out and he would sell Hicks the team upon receipt of a $10 million deposit by sundown. Hicks complied, but three days later, Carter returned his check and sold the team to Perot for $125 million.
From all appearances, it seemed that Perot and Hicks were involved in a fierce bidding war. But according to Hicks, the two men had privately agreed that if Perot purchased the Mavericks, they would become equal partners in both teams. During apress conference, Perot also alluded to the arrangement: “Someday, we would like to align the interests and perhaps put the Stars and the Mavericks in the same organization.”
The honeymoon between the teams continued for the next several months while the Mavericks revamped their basketball operations. Unlike Hicks’ hands-off policy toward the Stars management, the Mavericks1 new ownership began to meddle immediately. Coach Dick Motta was fired; general manager Norm Sonju resigned under pressure. Veteran Keith Grant, vice president of basketball operations, quit before the new season began. Zaccanelli began living his Walter Mitty dream when Perot appointed him interim GM. Reports that he shot hoops with the players and attended team meetings gave rise to speculation that the Mavericks had their own Jerry Jones in the making.
In the summer of 1996, Hicks sent Perot a partnership agreement which documented what he believed to be their prior understanding: to own and operate a new arena as 50/50 partners. David Deniger, Hicks’ point man on the arena deal, realized that things were not as they seemed when he phoned Rick Patterson, the president of Perot’s Alliance Development Corporation. Patterson said that Perot had asked him to review the existing leases at Reunion. “There was some language in the lease you could interpret as saying that the Mavericks were the primary tenants,” says Deniger. ’They claimed that gave them some kind of preference vis-a-vis the city and the negotiations with the arena.”
In late September, Deniger attended a meeting with the Perot camp that cast further doubt over any partnership plans. Says Deniger, “They informed us that they needed two-thirds of the economics from the arena rather than 50 percent…. They basically wanted us to go about our business, and they would build the arena.’’ Deniger sensed a power grab. “Zaccanelli’s dream was that if Perot could get control of the arena process, Frank could get control of both teams and be Mr. Arena.”
The Stars felt they had been “duped” and decided to take a very aggressive public posture. In January 1997, Hicks went to the media and expressed his frustration with the pace of the negotiations. If Hicks didn’t see “concrete progress” within the next 30 days in talks between the Mavericks and the city, he would propose his own deal that excluded the Mavericks.
The Mavericks went ballistic in the press but refused to be intimidated by the Stars’ “threat du jour” and urged the city to side with them. Perot and his Hillwood Development Corp. were the ones who knew how to build public/private partnerships; they were the ones who envisioned a billion-dollar downtown megadevelopment around the arena. City officials, trapped between millionaires, grew defensive.
After 30 days. Hicks unveiled his new proposal as promised: a $ 180 million arena to be paid for by the teams ($55 million each) and by the city ( $70 million, 30-year, non-interest-bearing loan repayable by the teams after 10 years). Financial experts later calculated that Hicks ’ plan would cost the city an additional $48 million.
By mid-March, Perot presented the city council with his own more ambitious plan for a new arena. At a cost of $220 million, Hillwood would build a state-of-the-art arena if the city would foot half the bill. In return, the Mavericks would develop an accompanying 50-acre, billion-dollar commercial and residential project. The city’s $110 million share would not be a loan repaid out of future arena revenues but an equity investment, which would be returned by the economic impact downtown derived from the megadevelopment.
Hicks had clearly forced Perot’s hand, accelerating the pace of negotiations and putting something on the table for the city to chew on. His bravado in the press was further bolstered by the success of the Stars. Hicks’ big-spender ways gave the team credibility in the marketplace and a much deeper bench. Coach Hitchcock upped the team’s level of play, his passion for the game infecting the players. The team won their division but lost to Edmonton in a final playoff game wrought with enough emotion to send new-season ticket sales soaring.
The Mavericks, on the other hand, didn’t have it so good. Zaccanelli went from hero to goat when he made a series of disastrous blunders culminating in the trade of dynamic franchise player Jason Kidd. Under his management, attendance figures plummeted. In February 1997, Zaccanelli convinced veteran NBA coach Don Nelson to rescue him by taking over as general manager. Nelson came to town and concocted the biggest trade in NBA history. But even the new, improved Mavericks managed to break a record for least points scored in a quarter: two. If it wasn’t the worst season in Mavericks history, it was certainly the most embarrassing.
The once cocksure Zaccanelli, who had said that running an NBA team wasn’t exactly “brain surgery,” seemed changed. The Mavericks’ bungled season helped bring him “back down to earth,” says Den-iger, and helped usher in a new spirit of cooperation between the teams. Their negotiations left the spotlight as media attention focused on the legislature, which was debating what kind of public financing it would permit cities to offer arena builders.
In the spring of 1997, Zaccanelli and Deniger traveled to Chicago to study its new arena and the economic benefits the Bulls and the Blackhawks have realized by being under one roof. They later decided to structure their own deal in terms of an industry they both understood: real estate. They agreed that the arena would be like a shopping center with two major tenants, the Stars and the Mavericks. The landlord, an arena management company, would be jointly owned by both teams. “At that point,” says Deniger, “[the Mavericks] were back to being 50/50 partners and had given up on trying to extract more economics on the deal.”
Out of public scrutiny, the parties had set aside their egos and worked out most of their differences. After all, business is business. But one piece of the puzzle was still missing, a possible deal-breaker more concerned about the approval of a fickle electorate than the laws of economics: the Dallas City Council.
BY EARLY SEPTEMBER, THE PROSPECTS for an arena deal with the city of Dallas seemed as likely as peace in the Middle East. Perot had broken off exclusive negotiations with city officials, giving helicopter rides to any suburban mayor willing to make him an offer. One Dallas City Councilman branded his negotiators “vultures,” while others claimed that Perot’s tactics were just a publicity stunt to squeeze the city. Still others viewed the public financing of arenas as corporate welfare, saying the only mega-thing they develop is mega-income for learn owners.
Tom Hicks, acting every bit the elder statesman, reaffirmed in the press that he wanted his arena downtown. But if Perot was serious about the suburbs, did this spell the end of their precarious partnership?
I finally collar Hicks in early October on the eve of what he says is a big announcement. Forget what I had read in the papers, he says, there had been movement from all sides-(he Stars, the Mavericks, and the city of Dallas had finally come to terms. Together. they will build an arena in downtown Dallas for approximately $225 million.
Just how did he pull it off, I ask him, when everything looked so bleak?
There was only one sticking point left in the negotiations with Perot, he tells me: the number of directors on the arena board representing each team. Perot had insisted he be given three to Hicks’ two. An impasse ensued for several months, broken only when Perot finally agreed to three apiece. To break a board stalemate, the parties decided to search for a strategic partner who might acquire a financial interest in the deal.
I later learn that Ray Hunt was considered the natural choice. He owned the Reunion parking lot that was under consideration as a possible site for the new arena. But Hunt declined, apparently unwilling to get involved in sports ownership.
Hicks and Perot then turned to the Texas Rangers, which expressed interest in a partnership now that Hicks had purchased Channels 5 and 39. All three teams would gain value if they could jointly own and operate a regional sports channel. They began hammering out a deal that would have put the teams in the same organization with each one owning a piece of the other. But negotiations fell apart in September when the parties couldn’t agree on the relative value of each team.
Undaunted, Hicks approached Roger Staubach, knowing he had instant credibility with Perot. Zaccanelli had worked as a real estate broker for the Staubach Company-that’s how he met Perot in the first place. Staubach grabbed the opportunity, agreeing to purchase a small but equal piece of both teams. Finally, Hicks and Perot had their tiebreaker.
As far as public financing was concerned, Perot’s helicopter rides must have taken their toll. The city had upped its last offer to $ 125 million, which will come from increased tourist taxes-car rentals, hotel/motel-assuming Dallas voters approve. In addition to the two teams investing $105 million during the construction phase, they will pay the city $132 million in lease payments over the next 30 years. But the teams will split all arena-generated revenues 50/50. Hill wood Development will build the actual structure and Hicks Muse will be the financial advisor. The deal seems to have something for everyone.
“Every deal has its time,” Hicks tells me, “a period of gestation before it’s ready to be done.” After four years of negotiations, I figure this one has been pregnant long enough. Things can always come undone, but if there is anyone who can forge a last-ing relationship with both Ross Perot Jr. and the city of Dallas, it is Tom Hicks. The man has spent a business lifetime mastering the art of partnering. Ironically, the question still remains of using other people’s money. Will taxpayers give Hicks the venture capital he needs to build an arena? Stay tuned. The results should be on Channel 5 and Channel 39.