AUSWR
The Association of U S West Retirees
 

 

 

Goal! He Spends It on Beckham
By Graham Bowley
New York Times
Sunday, April 22, 2007

Denver  --  ONE night here in the late 1960s, around the time that Philip F. Anschutz began laying the foundations of a multibillion-dollar fortune, a drilling supervisor at one of his Wyoming oil rigs phoned him with bad news:  The well was on fire.  And if the fire kept burning, it would bankrupt him.

But there was a bright side, Mr. Anschutz reasoned.  The fire meant that he had finally struck oil.

He rented a plane, flew to Wyoming, and by 8 the next morning gambled more money on his oil venture by buying up land around the burning well, according to an account that Mr. Anschutz provided to the State Historical Society of Colorado in 1974.  He then hired Red Adair, a legendary oil-field firefighter, to put out the blaze, and, he said, invited a Hollywood studio to shoot the episode for the John Wayne thriller “Hellfighters.”

“There’s always a point that if you go forward you win, sometimes you win it all, and if you go back you lose everything,” Mr. Anschutz told the historian, recalling the fires.  “That was that point for me.”

Today, Mr. Anschutz is one of the wealthiest — and most secretive — tycoons in the country, parlaying early oil coups into real estate paydays, savvy runs at the railroad business, and the creation of Qwest Communications International, a telephony company that became mired in an accounting scandal.  Last week, Qwest’s former chief executive, Joseph P. Nacchio, was found guilty of federal stock fraud charges.  (Mr. Nacchio plans to appeal the ruling).

While the Qwest debacle bruised Mr. Anschutz’s reputation, his deal-making has not slowed down.  In his latest act, he is now the biggest backer of professional soccer in the United States, having recruited the British star David Beckham with a five-year, $27.5 million package to play for the Los Angeles Galaxy, the highest-profile of Mr. Anschutz’s three soccer teams.

He has also started free newspapers to challenge local media incumbents like The Washington Post, and he controls America’s largest theater chain — giving him added heft as he pushes into film production with family-oriented and spiritually themed movies like “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe,” a box-office hit.

Mr. Anschutz’s senior managers say he is confident that he can convert one of the world’s last big non-soccer-crazy nations to the sport, while also influencing the type of films that Hollywood produces.  Amid the push and shove of the global media whirl, he wants to be an arbiter of taste, fashion and even moral values.

Acquaintances say Mr. Anschutz’s embrace of Hollywood and the media business amounts to a wholesale reinvention that uses business lessons first learned in the oil fields.  They also describe him as an authentic visionary and one of the most exciting businessmen of his generation.  His critics, however, are less laudatory, describing him as overly fond of reckless financial wagers that have helped him advance hot-button political and social issues.

For his part, Mr. Anschutz declined to be interviewed about his businesses or his aspirations.  But that penchant for privacy may be tested in the months and years ahead as he draws his corporate goals and personal values more brightly and publicly on the global skyline.

“Twenty years ago, you would have won an enormous amount of money with people who would have bet you that he would not touch the entertainment industry,” says Tim Leiweke, one of Mr. Anschutz’s chief lieutenants, who runs AEG, Mr. Anschutz’s entertainment and sports enterprise, based in Los Angeles.  “But it does follow a pattern.  He has an unbelievable gut instinct for what is about to come.”

WHILE Mr. Anschutz has a well-known predilection for privacy, if you look closely enough you can catch glimpses of him around town.  Dressed in his cycling clothes, he arrives for work at 5 a.m., say employees at a Starbucks in the Denver office tower that houses his holding company, the Anschutz Company.  He often waves to them, they say.

Mr. Anschutz regularly visits the nearby Barnes & Nobel in the 16th Street Mall and sits quietly at the back.  “He is in here a lot,” says Bob Holben, a bookseller.  “I think he wants to get out of the office.  He is a really low-profile guy.”

He is an honorary trustee of the American Museum of Natural History and a generous philanthropist;  he has given more than $7 million to the University of Kansas and pledged nearly $100 million to a new hospital campus at the University of Colorado.  Yet in the evenings, say those who know him well, he makes a point of leaving charity dinners before 10 p.m.

He has lived in the same house in central Denver for more than 30 years and has been married to the same woman, Nancy, whom he met in college, for four decades.  He also has three children — one of whom, his son, Christian, is dating the ice-skating star Michelle Kwan.  He likes to hunt, has run several marathons and, in February, was host for a special event at the Tour of California, a cycle race he is promoting.

Still, Mr. Anschutz remains elusive.  One of the most tangible and easily seen signs of his presence in Denver is the blue Qwest logo emblazoned on that company’s 709-foot tower.  Far beyond the tower and the city limits lie the sprawling plains where Mr. Anschutz, a small, fit man of 67, grew up.

Like his older sister, Sue Anschutz-Rogers, Mr. Anschutz was raised in Kansas, enveloped by their father’s passion for real estate and oil.

“My father had a real knack for buying ranch land which also became a successful oil field,” Ms. Anschutz-Rogers recalled in an interview with a Denver historian.  “As a girl, I would go out with him to check on oil wells and sit there on the wellhead with him, waiting hopefully for it to come in.”

Mr. Anschutz attended grade school in Hays, a town in western Kansas, before moving to high school in Wichita.  His father was a hard-living speculator whose business went through good and bad times, sometimes pushing the family close to destitution.  Whatever their fortunes, the family members were always neatly clothed, neighbors say.

After graduating with a degree in business from the University of Kansas in 1961, Mr. Anschutz intended to study law.  But his father was ill and the oil business was on the verge of bankruptcy, so Mr. Anschutz moved to his father’s Denver office and got his hands dirty in the oil patch.  He began working as a contract driller, digging wells for other people until he could buy his own.

He currently owns three ranches, and his affinity for land has lasted throughout his life.  “I have always had faith in real estate,” he said in the Colorado historical society interview, one of the few forums in which he has offered on-the-record recollections about his life and career.

In 1980, Amoco discovered major oil and gas reserves in Wyoming, abutting the Anschutz Ranch East — a discovery that meant Mr. Anschutz was sitting on one of the biggest oil finds in decades.  In 1982, as the oil market was booming, he sold half of his holdings to Mobil Oil for $500 million.  “Anschutz was ahead of the curve because he got out before oil prices hit 10 bucks a barrel,” said Ron Rizzuto, a business professor at the University of Denver, of the subsequent price drop that crushed the oil market.  “It was brilliant timing.”

Two years later, already having diversified into mining and Denver real estate, Mr. Anschutz latched onto railroads — deeply unfashionable relics from the 19th century.  He bought a small local railroad before acquiring for $1.5 billion the vast Southern Pacific railroad, which had been slammed by years of underinvestment and competitive pressure from trucking.

“We got it on Oct. 13, 1988, and by January we realized we had a terrible hole,” said Robert F. Starzel, a lawyer who worked for the Anschutz Company for three decades.  “We had negative cash flow of $450,000 a day.”

Mr. Anschutz moved to San Francisco, Southern Pacific’s home, for five days a week, taking a room in the Hyatt, and forced Southern Pacific to modernize its systems and controls.  He also extended the line’s geographical reach to Chicago, while selling off $2 billion in other unwanted routes and real estate.  He took Southern Pacific public in 1993 and then merged it with Union Pacific three years later in a $5.4 billion deal.  He still owns slightly less than one percent of Union Pacific, a stake worth around $273 million, and until last year had a seat on the board.

Mr. Starzel, who is one of Mr. Anschutz’s closest friends, says that the mogul enjoys taking aggressive, all-or-nothing risks.  “His father was a real deal maker — he took Phil around as a young child to show him how deals were made,” Mr. Starzel says.  “One of Phil’s requirements in life and business is to have a number of things going at the same time because he recognizes that any one or two might fail.”

Southern Pacific owned a small unit that laid fiber-optic cable beside railroad tracks for other companies, a business that Mr. Anschutz decided to expand.  After banks refused to back the expansion, he created a separate company, SP Telecom, that included the fiber-optics business and the railroad’s rights of way that allowed him to lay cable along Southern Pacific’s route.  That company eventually became Qwest, a darling of the late ’90s Internet boom;  Mr. Anschutz took it public in 1997 in a $297 million offering.

“He didn’t claim to know telecoms, but it was an asset, the rights of way, that he thought that he could make a little bit of money on,” says Dan Reingold, a former telecommunications analyst.

A little bit of money, indeed:  by 2000, Mr. Anschutz’s fortune, enhanced by Qwest stock, had grown to more than $15 billion.

Mr. Anschutz took Qwest public a year after the entire telecommunications business was deregulated, causing the industry’s overall fortunes to soar.  To move things along, he hired Mr. Nacchio, a top AT&T salesman, to steer Qwest’s growth.  Together in 2000, Mr. Nacchio and Mr. Anschutz won a $43.5 billion all-stock bid for U S West, the Denver-based telephone company whose cash-rich coffers provided the money to pay for the expansion of Qwest’s network.  Qwest also took on piles of new debt.

AND that’s when the bubble began to burst.  Use of the Internet did not expand as quickly as they had anticipated, and new compression technology meant that voice and data traffic could be carried by using a small fraction of the capacity of the cables that Qwest had laid down, so much of that expensive new network went unused.

As the entire telecommunications sector came under siege amid missed revenue goals and overly rosy financial projections, Qwest’s share price crashed from a peak of $66 in March 2000 to just over $1 by August 2002.  In October 2003, Qwest revised downward by $2.48 billion its revenue for 2000 and 2001.  The next year, it paid $250 million to settle Securities and Exchange Commission fraud charges without denying or admitting guilt.  (Mr. Anschutz recruited a new chief executive to replace Mr. Nacchio;  Qwest stabilized and was profitable for the first time in 2006.  Its shares currently trade at $8.88.)

The Qwest sell-off lopped billions of dollars from Mr. Anschutz’s fortune and, analysts say, may have harmed his reputation.  Although those close to Mr. Anschutz say the media have unfairly linked him to the Qwest debacle, he was a director and non-executive chairman of the company until 2002.  He remained a director until 2006.  He also sold more than $1.5 billion in Qwest stock between 1998 and 2001, which, according to a spokesman, was done only at the request of a major outside investor;  the spokesman said the proceeds from the sales were reinvested in other businesses.

Even so, Mr. Anschutz’s other stock dealings drew unwanted attention.  In 2002,   
Eliot Spitzer, then New York’s attorney general, sued Mr. Anschutz and four other chief executives, accusing them of receiving shares in lucrative public offerings in exchange for passing on investment banking business.  Mr. Anschutz denied any wrongdoing, but settled the charges;  his company said he was victimized by a change in public opinion after the telecommunications collapse.

Mr. Nacchio was found guilty on federal stock fraud charges last week in Denver in relation to his sale of $101 million in Qwest shares in 2001.  A jury said he illegally profited from stock sales he made with inside knowledge that Qwest was unlikely to meet revenue targets.  Mr. Anschutz has not been charged with any wrongdoing involving anything at Qwest.  Although Mr. Nacchio has said that Mr. Anschutz was involved in every major decision at Qwest, some federal authorities have said Mr. Anschutz had no knowledge of financial machinations at the company.

In response to questions about Qwest’s financial troubles, a spokesman said that Mr. Anschutz and other directors took action any time they learned of a problem but that they were not told about everything going on at the company — an argument that not everyone accepts.

“Ignorance is no excuse if you are on the board, particularly if you are someone who was as vitally involved as he was,” said Nell Minow, editor of the Corporate Library, a nonprofit group that monitors corporate boards.  “If he knew, then he was making a mistake.  If he didn’t know, he was making a bigger mistake.”

Mr. Anschutz left the Qwest board last year, and said he would sell his remaining 17 percent stake in the company over the next several years.  About three weeks ago, he took the witness stand in Denver during Mr. Nacchio’s trial.  He arrived at the courthouse at about 6:30 a.m., well before reporters, and later offered testimony about his relationship with Mr. Nacchio.

He said that Jack Grubman, the former leading telecommunications analyst who has been barred from the securities industry for issuing misleading financial reports, recommended that he hire Mr. Nacchio.  Mr. Anschutz also said that his role as non-executive chairman was “really ceremonial” and that Mr. Nacchio did not run every major decision by him.  A video posted on the Web site of The Denver Post shows Mr. Anschutz departing the courthouse surrounded by four men in suits and being whisked away in a silver Audi.

Mr. Anschutz loathes self-aggrandizement and never likes seeing his name in the papers, says a spokesman, Jim Monaghan.  Others who have worked for him say that he even takes a back seat in business meetings.

“The first time I saw him outside a meeting at Qwest, he wore a very basic suit and business loafers,” says Stephen Martin, a former legal counsel at Qwest and now a professor at the University of Denver.  “You would not have thought that was the billionaire who created Qwest.  He blended in.”

Mr. Starzel, Mr. Anschutz’s longtime business associate, concurs.  “He tries not to have an ego because it gets in the way,” he says, also noting Mr. Anschutz’s preoccupation with proper comportment.  “He likes things to be spick-and-span.  I have been in a meeting when he has told somebody, ‘Don’t sip your coffee like that.’ ”

When Qwest’s fortunes first began slipping, Mr. Anschutz had already embarked on another venture — in movie theaters.  In 2000 and 2001, he bought three bankrupt theater chains — United Artists Theaters, Regal Cinemas and Edwards Theaters — with a partner, Oaktree Capital Management.  Like the railroads, the theater business was in disarray because chains had overspent by building new sites with stadium-style seating.

Mr. Anschutz bought the companies’ debt, converted it to stock and used bankruptcy procedures to break the theaters’ property leases and shutter underused theaters.  He rolled the three chains into a single entity, the Regal Entertainment Group, which now has 6,386, or 18 percent, of screens in the United States.  It went public in 2002, in a $342 million public offering; the theaters have returned to profit although their earnings have not been stellar and the stock has traded erratically.

Mr. Anschutz’s team continues to work on a turnaround.  They have found ways to fill theaters with alternative events when films are not showing, like networked business meetings and broadcasts of live shows.  The Metropolitan Opera in New York is showing live operas on its screens, and Regal theaters are also offered as places for worship to faith-based organizations.  (Religion is a pillar of Mr. Anschutz’s life, friends say;  a Presbyterian, he attends church services regularly with his family.)

Regal’s biggest innovation has been the introduction of national advertising before the feature presentation.  “Theaters were already selling advertising, but because they were not national, they were attracting local car dealers,” says Marla S. Backer, an analyst at Soleil — Research Associates.  “But now all of those cinemas together can bring in national advertisers.”

All of this, associates say, reflects Mr. Anschutz’s modus operandi.  “What he tends to do is buy at the right price, and makes sure there is something else you can do with the asset you are buying,” says Kurt C. Hall, who runs Regal’s advertising arm, a joint venture with two other companies;  it was spun off this year.

Last year, as he had done at Qwest and Union Pacific, Mr. Anschutz stepped down from the Regal board.  That cleared the way for yet another new phase in his career, one in which he seems much more willing than in the past to publicly project his moral beliefs to the world around him through films, sports and newspapers.

Mr. Anschutz’s interest in entertainment dates from the 1980s, when he tried to build a convention center and sports and entertainment district on railway land he owned in Denver.  The city picked a different site, which associates say was a bitter setback.  Undeterred, he waited for another opportunity to build and own an entertainment venue, control the events there, and own the surrounding real estate — a trifecta that would cause the value of each of those components to rise by being linked to the others.

He spotted such an opening in 1995 and phoned Mr. Leiweke.  “He called me and said, ‘Tim, that thing we were going to do in Denver, we are going to do it in L.A.,’” recalls Mr. Leiweke, 49, the head of AEG.

That year, Mr. Anschutz and a partner bought the bankrupt Los Angeles Kings hockey team for $113 million;  in 1998, they bought a stake in the Los Angeles Lakers basketball team.  That same year they also broke ground on a new Los Angeles sports arena, the Staples Center.  Today, the Staples Center is anchored by Kings and Lakers games, and AEG makes money from, among other things, ticket sales, merchandising and sponsorship.  It fills out the days when the teams aren’t playing with concerts and shows.

AEG is now developing a $2.5 billion, four-million-square-foot entertainment district around the Staples Center called L.A. Live, which will include hotels, restaurants and Regal theater screens.  AEG is deploying the same model as it builds entertainment complexes overseas, in central Berlin and in east London at the Millennium Dome.  Mr. Leiweke says AEG also has plans for “something” soon in Asia, although he won’t be more specific.

THE sports and entertainment platforms that Mr. Anschutz has developed are also a launching pad for what analysts say is his biggest gamble yet:  the rollout of soccer as a major American sport, starring one of the game’s thoroughbreds, David Beckham.

Mr. Anschutz initially became interested in soccer, associates say, because he sees it as family-friendly, something that parents and children can play and watch together — a view that offers one of the more public instances in which Mr. Anschutz’s business and personal interests overlap.

Mr. Anschutz is a major donor to the Republican Party, and his philanthropic arm, the Anschutz Foundation, gives money to conservative causes, including a group that opposed anti-discrimination laws protecting gays and lesbians;  organizations that fight Internet pornography;  and groups that oppose possible bias in the media.  He also gives to evangelical Christian groups.  But executives who work with him say his private beliefs have never influenced his business decisions.

His friend Mr. Starzel says the best example of Mr. Anschutz’s social activism is provided by another organization he funds, the Foundation for a Better Life, which sponsors thousands of high-profile advertisements on billboards along highways, in cities, on television and in theaters.

The advertisements are largely noncontroversial, apolitical and multifaith.  The billboards celebrate values like commitment, hard work and self-confidence, alongside pictures of such luminaries as Einstein, Whoopi Goldberg, Gandhi and others.  A billboard at the Denver airport shows Michelle Kwan and says: “What makes champions?  Dedication.  Pass it on.”  Others feature Mother Teresa, Muhammad Ali and Shrek.

Mr. Anschutz and his colleagues also clearly think David Beckham is what makes champions.  When Major League Soccer, the fledgling American league, was founded in 1996, Mr. Anschutz owned just one team, the Colorado Rapids (which he later sold).  But by 2002 he had control of 6 of the 10 clubs then in the league.  Today he has three teams — out of a league total of 13 — playing in Los Angeles, Chicago and Houston.

Don Garber, the commissioner of Major League Soccer, says the future for the sport is bright here because of the growing Hispanic population and because millions of youngsters now play soccer at school.  “Phil is just a great media visionary and understands the importance of content and how it can help drive strategy and growth,” he says, adding that the soccer league would not exist without Mr. Anschutz.

Yet some skeptics are dubious that America will ever embrace soccer.  “They have been saying for a long time that soccer is ready to take off,” said Stefan Szymanski, an economist at Imperial College in London who has specialized in the economics and business of sports.  “There is a cultural objection to soccer in the United States.”

NONE of that pessimism has held back Mr. Anschutz.  In 2003, he opened a $150 million soccer-specific stadium and sports complex, the Home Depot Center, in Carson, Calif., for his Galaxy team.  Last year, the soccer league changed its rules so that a club could set the salary of at least one of its players locally and thus break a salary cap of $2.1 million per team.  That cleared the way for Mr. Anschutz to bring Mr. Beckham from Real Madrid to Los Angeles this year.

AEG executives say they are interested in Mr. Beckham for his on-the-field skills, but transplanting an athlete who is also a global media and fashion star to Los Angeles is the clearest equation yet of soccer with entertainment and celebrity.  The wooing of Mr. Beckham involved old-fashioned networking.

Mr. Leiweke, the AEG chief executive, got to know Mr. Beckham when AEG helped the star set up a soccer school in east London;  Mr. Beckham subsequently opened another at the Home Depot Center.  Mr. Anschutz and his wife met the soccer star briefly on the field at the Home Depot Center when Real Madrid played there two years ago.

Mr. Leiweke also got to know Simon Fuller, who is Mr. Beckham’s manager and the creator of the “American Idol” megafranchise, when AEG helped to organize an “American Idol” tour.

When Mr. Beckham’s contract with Real Madrid came up for renegotiation on Jan. 1, talks began among AEG, Mr. Fuller and Mr. Beckham’s representatives in London and Los Angeles.  On Jan. 10, Mr. Leiweke, who had just returned on a flight from London, signed the contract for Mr. Beckham’s hiring in the baggage claim area at Los Angeles International Airport.  Mr. Beckham is slated to receive around $5 million a year, although his agents say endorsements and sponsorships could take his earnings to $250 million over the five-year contract.

In what might be described as the “Beckham bounce,” AEG said last week that since signing Mr. Beckham, the Galaxy had booked an added $13.3 million from ticket sales and other sources — more than enough to cover two years of the soccer star’s salary.

Although British tabloids have been filled with accounts of Mr. Beckham’s extra-marital exploits, Mr. Leiweke favors words like “respect,” “integrity,” “character” and “family” when discussing the virtues that attracted AEG to the soccer star.

“It’s that blue-collar work ethic in him, that is why we bet on David Beckham,” he says.  Mr. Leiweke says AEG is now in talks to bring a second international star to the Chicago Fire, another of Mr. Anschutz’s soccer teams.  “We are working on a deal right now,” he says, before suggesting whom he is trying to snare.  “There are only four players that move the needle:  Ronaldo. Beckham. Zidane. Ronaldinho.”

IF Mr. Anschutz sees an underappreciated asset in soccer, he sees the same in another out-of-favor business:  newspapers.  He had long had an interest in newspapers, according to Mr. Starzel, whose own father worked for The Associated Press, and they had many conversations about the industry.

In February 2004, Mr. Anschutz bought The San Francisco Examiner.  Like many other newspapers, The Examiner had falling readership and advertising.  But Mr. Anschutz saw an opportunity to create a low-cost newspaper model that better served local readers and advertisers, which he thought traditional papers were ignoring.

“We decided there continues to be a big appetite for news and information, especially local news and local information, and news that has some use to it,” said Ryan McKibben, a former Denver Post publisher who now heads the Anschutz Company’s media division, which includes its newspapers and related Web sites.

Later in 2004, Mr. Anschutz bought Journal Newspapers Inc., publisher of three suburban dailies in the Washington area, and renamed them The Washington Examiner.  Last year he opened another paper, The Baltimore Examiner.  His publications are free and are mostly delivered to homes.  Home delivery is the best way, Mr. McKibben says, to reach readers that advertisers most desire:  25- to 54-year-olds with household incomes of more than $75,000.  All the Examiner papers use census data to target those readers, and Mr. McKibben said the papers’ low overhead (staff sizes are small) means that they can charge advertising rates that are 40 percent to 50 percent lower than those of incumbent newspapers.

Mr. Anschutz has trademarked The Examiner name in 63 other cities in the United States and already has Web sites covering 20 of them.  Mr. McKibben says the Examiner papers are not trying to steal readers from city dailies like The Washington Post, but are seeking new customers who have not previously read newspapers.

Mr. Anschutz’s papers are still small.  The San Francisco Examiner, for example, has a circulation of just 200,000 (including 150,000 by home delivery), Mr. McKibben says, while the Washington paper has a circulation of 260,000 (210,000 by home delivery).  The papers favor short articles and wire copy, but Mr. McKibben notes that they have also successfully hired veteran reporters.  Even so, some question the papers’ journalistic and financial merits.

“They do not strive to be high-quality,” said Sammy Papert, chief executive of Belden Associates, a newspaper consulting firm.  “There are new audiences, certainly, but what is less certain is whether the financial underpinnings are solid.”

Mr. McKibben defends the quality of his papers and says they are designed to meet the needs of the market they serve.  He declined to discuss the papers’ finances, but said that a recent audit indicated that readers were spending time with the publications.

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