An Epic Swindle: 44 Months with a Pair of Cowboys

by Brian Reade

  Who proceeded to drive their tanks onto our lawn and blast us to hell.

  CHAPTER TWO

  ‘The more I looked, the more I became convinced it was an opportunity to buy a crown jewel of sports at a modest price’

  – Tom Hicks

  ‘A bee-bah-bow-ba-ba-ba-ba-bow … how yawl doin’ out there in pop-picker-land. You’re listenin’ to Steve King, The Weekend Wonder Boy on K-O-L-E, the station that makes sure you don’t feel alone in the Lone Star State. Now I wooden know if you have a wooden heart but I most definitely do not have a wooden heart. Cos this daddio’s gotta heart full of lurrrrve for all you crazee cats out there. Which is why your very own King of Texas is gonna get your beat-feet a-poppin’ as he spins you the latest hot disc from, you guessed it … Dixie’s finest … the Pelvis himself …’

  I might be wrong, but that’s how I imagine fifteen-year-old Tom Hicks in 1961 sitting behind the decks of his father’s KOLE radio station, zits popping out of plump baby-faced cheeks under a greased-back jelly-roll haircut, in his DJ persona as Steve King The Weekend Wonder Boy.

  He’d been doing menial jobs at the station since he was thirteen, but his dad’s decision to give him his own show led to his first big pay-day. And twenty dollars a week in 1961 was nothing to be sniffed at. As Steve King, Hicks was already indulging his lifelong passions of talking big and turning a quick buck while letting others do the donkey work. In this case the likes of Elvis, Del Shannon and Buddy Holly.

  Thomas Ollis Hicks was born in Houston on 7 February 1946 and spent his early childhood in Dallas where his father, John, was an advertising salesman for TV and radio stations.

  In the late 1950s John Hicks bought out the KOLE radio station in the small, oil-refinery city of Port Arthur, ninety miles outside Houston. The city’s only claims to fame were that it was a hot-bed of racial segregation and Janis Joplin’s birthplace.

  Hicks went to Thomas Edison Junior High and then Thomas Jefferson High School where he was a modestly successful American footballer. Admirers say it was these teenage years spent dee-jaying and playing gridiron that inspired his later investments in sport and media. Others refuse to see past that twenty bucks a week, as it was clear making money was where his heart lay.

  After high school, he studied finance at the University of Texas, earning a Bachelor of Business Administration degree in 1968 and two years later he added a Master of Business Administration degree from University of Southern California. While at university he became a brother of the secret-letter Sigma Phi Epsilon fraternity in which he remains to this day, living by its three guiding principles of – no sniggering at the back, please – ‘Virtue, Diligence and Brotherly Love’.

  His first job on leaving university was with Continental Illinois in Chicago, where he helped set up a venture capital division. Hicks took to venture capital like a vampire to blood and soon he was in Wall Street, working in the investment departments at first Morgan Guaranty Trust Company and then J.P. Morgan.

  In 1974, he moved back to Texas to serve as President of First Dallas Capital Corporation and three years later, at thirty-one, Hicks created Summit Partners to do his first leveraged buyout – the technique of buying low with borrowed money, then selling high at a huge profit, which he perfected so spectacularly it made him a billionaire. The same technique he would employ thirty years later to buy Liverpool. Shame about the profit.

  In the greed-is-good 1980s, Hicks was like a (non-criminal) Gordon Gecko, filling his cowboy boots through the gains of leveraged buyouts, with partner Bobby Haas. In one deal alone, they bought Dr Pepper and 7Up for $646 million and sold it on for $2.5 billion.

  Hicks and Haas were pulling off coup after coup in media, oil, gas, food and soft drinks, mainly through buying up firms with similarities and putting them together, utilising economies of scale. But the investment world started to change as fund managers came to the fore and in 1989 the pair split because Hicks wanted to raise huge pools of cash to invest in big ventures while Haas preferred to work on individual deals.

  One former Hicks and Haas employee who stayed close to both men told Bruce Schoenfeld of US magazine publisher Street & Smith’s SportsBusiness Journal that Haas had made enough money to last him the rest of his life and wanted out. Not so Hicks.

  ‘It wasn’t important for Bobby Haas to be on the Forbes List (the US rich-list) but Hicks cared about such things. He was the quintessential businessman who loved keeping score. He loved doing big deals, showing off his success.’

  According to Schoenfeld, Hicks had always been a gambler, but a clued-up one who calculated the odds carefully. The occasional losses were simply seen as the cost of doing business.

  Luke Bateman, a Dallas-based investment banker, explained his thinking: ‘If you’re interested in big money, in big business, raising billion-dollar funds is the way to do it. You can’t win in Vegas playing small stakes.’

  With Haas gone, Hicks sought partners who shared his desire to reach for the stars. In 1989, he co-founded the investment firm that was to grow into Hicks, Muse, Tate & Furst, with former Prudential Securities banker John Muse.

  The firm raised $250 million, with early investments including life insurance company Life Partners Group. In 1991, Morgan Stanley’s Charles Tate and First Boston’s Jack Furst became partners. During the time that Hicks was chairman (1989 to 2004), the firm raised $12 billion of private equity funds, broke more than $50 billion of leveraged acquisitions, and grew into one of the largest private investment firms in the USA.

  Their first few funds were hugely successful, enabling a buoyant Hicks to buy Dallas’s prestigious Crespi estate with its historic centrepiece mansion, and turn it into the most elegant, most expensive and most-envied house in Dallas.

  Schoenfeld, who interviewed Hicks there in May 2010, when his sports empire was unravelling, describes it thus:

  The 28,996-square-foot home connects with George W. Bush’s off the back lawn. The Matisse on the library wall looks utterly appropriate, and why not?

  The Hicks house is bigger, and more tastefully appointed, than most art museums. At an estimated value of $41 million, down from a high of more than $60 million, it remains the most expensive house in Dallas, which is an achievement in a place that isn’t shy about showing off its wealth. Turn into the sweeping driveway, glide past the manicured lawns, and it comes upon you like a Bordeaux chateau, all turrets and greenery.

  Hicks owns some $100 million of real estate and controls multiple businesses. His net worth was estimated by Forbes last year at $1 billion, which should keep the Matisse hanging on the wall for a while.

  Throughout the 1990s everything Hicks touched turned to gold as he rode the wave of new media with stunning success. He invested $2 million with Mark Cuban’s Broadcast.com and turned that into $55 million in less than a year. But when he tried to take a stake in the emerging internet boom his luck changed.

  ‘We were making bets in another exploding industry we knew nothing about,’ Hicks told Schoenfeld.

  The profits were becoming so huge so quickly, and thus the bets so tempting, he was buying up companies without arranging the capital to run them. ‘It was a huge mistake,’ said Peter Brodsky who worked for Hicks & Muse and is now a principal at HM Capital. ‘By the time we were raising the money, the dot-com bubble had burst.

  ‘Tom Hicks has an iron stomach for risk. As a result, his successes are big, and his failures are big.’

  Suddenly, everything the Texan touched was turning brown. His telecom investments ended up losing more than $1 billion, a South American sports channel and other Latin investments went broke and the internet investments never regained anything close to their value.

  ‘In hindsight, where I personally had my biggest success was with middle-market companies,’ Hicks told Schoenfeld. ‘When we became a bigger institution and started doing larger deals, those were not as successful. I made my money in leveraged buyouts, and gave a lot of it back in money management.’

&nb
sp; In 2004, he left Hicks, Muse, Tate & Furst, saying he wanted to spend more time with his family – art dealer wife Cinda and his six children, four from a previous marriage, and, more importantly, his sports firms.

  As the dollars rolled on a non-stop conveyer belt towards his tax-minimised accounts during the nineties, Hicks bought into three different sports – baseball, ice hockey and, let’s commit blasphemy here, soccer.

  Observers say his intentions were twofold. He’d made a billion out of unsexy, unseen deals, but they didn’t give him a big profile outside business circles. They didn’t boost the view he had of himself as a patrician figure, a pillar of the community to be loved and respected for putting something back. In short, he thought it was time to buy into the ego-massaging industry.

  Of course, there was also the small issue of sport becoming big business. Ball games were no longer about how many dollars you took from your local blue-collar workers on the gate or at the burger-stand. It was about how much you could take from companies, from selling on the brand via sponsorship, corporate packaging and TV and internet rights. With Hicks’s vast experience and huge portfolio in broadcasting, it seemed natural to him that building and exploiting sports franchises was the future. But when you cut through the hype, spin and rewriting, he only ever enjoyed one major success during fifteen years’ investment in sport: winning ice hockey’s Stanley Cup with the Dallas Stars.

  Meanwhile, there was such a litany of failure and broken promises Hicks would eventually be a leading contender for the title of America’s Worst Sports Owner.

  According to Schoenfeld, Hicks enjoyed owning sports teams and being saluted as a philanthropic public figure. When things went well he liked the adulation and revelled in beating America’s other multimillionaires.

  ‘When I look in the mirror, I see a very competitive guy,’ Hicks said. ‘I like to win. And what I say about sports is, you get instant feedback. You either win or lose that night.’

  But, says Schoenfeld, what matters most to Hicks is the ultimate feedback of a big black number on his financial statement, and all of his investments in sports franchises are primed to pay him handsome returns.

  It was why he treated all of the criticism he received – and he received it wherever he went – like water off a shark’s fin: ‘I’ve been doing high-risk, high-return investment since 1977. It’s all I’ve ever done,’ said Hicks.

  ‘So I’m used to having some deals be great and some not work out. I don’t get devastated because, at the end of the day, whatever happens, it’s a deal. These are sports teams, so I have to read about it in the newspaper. That’s the only difference.’

  He bought the National Hockey League’s Dallas Stars in 1996 for $82 million, inheriting a club on the up, with a strong core of home-grown talent, in a hot southern city which was just starting to fully embrace a sport usually loved by cold northerners.

  In 1999 they won, for the first time, ice hockey’s biggest club accolade, the Stanley Cup, and for a short while in the early 2000s, Dallas Stars was the league’s highest-grossing team. Together with Ross Perot Jr., who owned the NBA’s Dallas Mavericks, Hicks built the American Airlines Center at a cost of $325 million which was widely hailed the most attractive of its generation of arenas. But the Stars never recaptured the turn-of-the-millennium glory days and went into decline. By the end of season 2009–10, with a skint Hicks trying to bail out and starving them of funds which left their wage bill way below their rivals, they finished last in the Pacific Division.

  It was the first time the franchise had failed to make the play-offs for two consecutive seasons since moving to Dallas in 1993. Hicks wanted out and the feeling could definitely be described as mutual.

  There was a different kind of star rising in Texas in the 1990s called George W. Bush, a piece of whom Hicks quickly realised he had to have. Down in the Lone Star state, their relationship is still viewed, by many, with suspicion.

  In 1994, Hicks switched sides in the state governorship race, moving his hefty financial backing from the Democrat Ann Richards to Republican Bush, pumping so much into the future president’s coffers he became part of an elite group of donors called Bush Pioneers.

  When elected, Hicks persuaded Governor Bush to form a private investment company called The University of Texas Investment Management Company (UTIMCO), which awarded lucrative contracts from public funds to private firms, including ones connected to Hicks.

  UTIMCO’s board consisted of Bush Pioneers and Yale University connections, and operated without any disclosure or public scrutiny until the Texas Legislature intervened. By then UTIMCO had lost a fortune in failed investments in Enron and WorldCom stock. Investigations revealed a pattern of cronyism with substantial investments going to a group of companies with close ties to Bush and Hicks.

  In 1999 Hicks was forced to resign after the Houston Chronicle exposed these dealings. Award-winning investigative journalist (and massive Liverpool fan) Ed Vulliamy, who was the Observer’s man in America, says:

  After Bush made him a regent of the University of Texas Board in return for a hefty donation to his campaign coffers, Hicks revolutionised the way the university invested its funds.

  He ‘privatised’ some $9 million of assets into UTIMCO, which also guaranteed good salaries for Hicks and his fellow regents on the board.

  UTIMCO soon went into politics. The company placed $10 million with the Carlyle Group merchant bank in Washington, whose chairman was Frank Carlucci, Ronald Reagan’s former Defense Secretary. George W. Bush had a seat on Carlyle’s board.

  There was no criminality, but analysts see Hicks, who became Bush’s fourth biggest campaign donor, as one of the President’s Texan ‘Good ol’ Boys’ cronies.

  And he certainly looked after his political friend. In 1998 when Hicks bought the Texas Rangers baseball team for $250 million, from a group headed by Bush, Dubya received a bonus of $12.6 million on top of the $2.3 million he earned from his $606,000 investment in the franchise, thus boosting his windfall to $14.9 million.

  As Vulliamy notes: ‘Tom Hicks was the man who really made George W. Bush rich.’

  But when asked about their friendship at his first Anfield press conference, Hicks, conscious that he was now in a city that could never be described as natural Bush territory, replied: ‘Certain media would say I’m one of his closest friends. I’m not in his inner circle. I know his dad.

  ‘But he is a big baseball fan and once every two years I bring my star players to the White House to meet him. Would I do the same with Liverpool? Sure, if they’re in the neighbourhood.’ Fortunately they never were.

  After Hicks took over the Texas Rangers things went relatively well. They won their local division titles in 1998 and 1999 but failed to make any impact on baseball’s coveted World Series.

  Hicks knew that if he was to win kudos and make a financial killing he had to do a deal that would make American sport believe there was a new mogul in town. A mogul with balls bigger than Texas. So in the winter of 2000 he lured Alex Rodriguez, the best player in baseball, to the Texas Rangers with a ten-year, $252 million contract, which was the most generous in the history of the game. Hicks’s plan was to make A-Rod, as he was known, the cornerstone of a franchise which would sweep all before it.

  ‘I like to win. I like to build things, whether it’s a $2 billion corporate acquisition or a chance to win the World Series,’ Hicks said at the time. ‘This is a chance for our team to win a World Series and leapfrog into an area where we’ve never been before.’

  What a shame this deal went down as the worst ever in modern baseball. What an even greater shame it led one American newspaper to christen Hicks ‘Tom Dumb’.

  It was a spectacularly reckless transaction made by a man who clearly understood very little about sport. A-Rod was a big star, but no other club had been willing to pay within $100 million of that sum for him, meaning Hicks had outbid himself on a grand scale. But it didn’t stop there. By busting the bank for A-Rod there
was no cash left for much-needed investment in the rest of the squad. With no funds available for quality pitchers, which are vital to decent teams, the Rangers had the seventh-highest payroll yet one of the worst teams.

  By the end of the 2003 season it was clear the only way the Rangers were going to be successful was by selling Rodriguez and using the proceeds to rebuild the entire squad. At this point the comedy turns to farce. After tortuous negotiations to sell A-Rod to the Boston Red Sox failed, Hicks made him captain and announced he’d see out his full ten-year contract (which would have taken him up to the age of thirty-five).

  ‘A benefit of Alex now being the official leader of our team is that our fans are now confident he is going to be here,’ said Hicks. ‘If we don’t win, the fans are going to be mad. But we’re going to win.’

  A couple of weeks later he moved Rodriguez to the New York Yankees in a deal that left egg splattered all over his face. He had to pay them to take A-Rod off his hands. With $179 million still owed to Rodriguez, Hicks paid him $67 million to leave, allowing the Yankees to sign him for a mere $16 million a year.

  Hicks had believed he could buy the World Series simply by bribing a megastar to shine in a team of average players, but all he bought was acute embarrassment and confirmation of his own sporting ignorance. Fair play to A-Rod though. All in all, he took Hicks for $140 million, giving him in return three seasons where the Rangers finished bottom of the league every time.

  You can blame the world’s most famous Viagra salesman for getting Hicks involved in football – that’s the football of WAGs not moms.

  In March 1998 the Pele Law, named after the legendary player, was passed to attract outside investment into Brazil’s debt-ridden national sport. The top twenty teams were more than £250 million in the red, most paying it down by selling the transfer rights to their best players to foreign, mainly European teams. In 1999 a staggering 658 Brazilian professionals were sold abroad. The inherent problem was that Brazilian teams were legally bound to be run in a feudal manner, as social and athletic clubs rather than businesses. Pele Law changed that, allowing them to become corporations and negotiate their own commercial deals.