by Brian Reade
Hicks, Muse, Tate & Furst were quick to spot an opening.
‘It’s hard to imagine a better sector in which to invest in Brazil,’ said Charles Tate at the time. ‘If you add up all the fans of professional baseball, basketball, football and hockey in the United States, that number is lower than the number of Brazilians who are soccer fans.’
HMT&F invested more than £40 million in Corinthians in the first year of what was supposedly a ten-year partnership deal. So confident were they of striking it rich in Brazil that, six months after their investment in Corinthians, they took over the business operations of Cruzeiro, a first-division team from the east-central city of Belo Horizonte.
The plan was to buy up the cream of Brazilian football, broadcast their games all over Latin America on the Hicks-owned TV station PSN, sit back and watch the dollars roll in.
Just as he did at Liverpool, Hicks & co. talked Texan Big when Corinthians was bought. There were promises of bringing in the best players and the building of a 45,000-seater stadium in the suburbs of São Paulo, and at first they gave the fans hope. They tied down the best players with new contracts, found the cash to bring in decent additions like Dida and Luizao and signed a $12 million, two-year sponsorship deal with Pepsi.
On the pitch things were going well mainly because Corinthians were a side on the up. They had won the Brazilian championship in 1998, which they retained, as well as winning the FIFA Club World Championship in 2000.
But not long after that prestigious victory things began to go downhill. Corinthians weren’t bringing in the returns quickly enough to satisfy HMT&F, so they sold transfer rights to two of the star players, which brought in $12 million. Money which wasn’t reinvested in the team. Fans were enraged, especially when stories emerged of plans to change their famous black-and-white kit, and the anti-Hicks & co. protests began.
One Brazilian source said at the time: ‘The Americans came into Corinthians with money but did not understand the way football works. They brought in a strong team of advisers to administer the club but the way they did things was very American, in the crudest sense. The model they wanted does not function here. Things had to be done their way.’
In a scenario familiar to Kopites, Hicks finally bailed out in 2003 after three years of ultimate failure amid boardroom infighting, fan resentment, accusations that its local partner in Brazil had ‘misappropriated funds’ and legal wrangling which dragged on for another four years.
Corinthians, Brazil’s second-most popular club with a reputed following of twenty million fans, were left on a downward spiral. MSI took over the club’s management but, despite a league title in 2005, the financial problems initiated by HMT&F proved too much of a burden and they were relegated to the second tier of Brazilian football for the first time in their history in 2007. The fans never saw that new stadium.
When Hicks was desperately trying to sell Liverpool for an over-inflated price in 2008, he issued a prospectus to financial companies describing himself as ‘a master of purchasing and growing professional sports teams’.
Fans of Corinthians, the Texas Rangers, the Dallas Stars and Liverpool might disagree with that. After they’ve employed a surgeon to pick them off the floor and stitch up their split sides.
*
When the bailiffs finally came for George Nield Gillett Jr., taking his collection of thirty classic cars and his 235,000-acre Oregon ranch, the personal humiliation was beyond devastating: ‘I had ten days to get out of my house,’ said the father-of-four. ‘I had to buy back my clothes. I had to buy back my dogs.’
In 1992, as Liverpool sank to their worst league finish for twenty-seven years, Gillett was plunging even lower. For a quarter of a century the rich kid from Wisconsin had been building a billion-dollar empire, spread across the sports, media and meat industries.
But it was an empire built on high-risk borrowing which was always one big, godawful deal away from ruin. That deal was buying Storer Communications’ six TV stations, which went so badly wrong it left his businesses with debts of $1 billion and a personal bankruptcy to the tune of $66 million.
Back then he admitted he had ‘caused the problem’ that led to the downfall of Gillett Holdings because of an ‘error in judgement and timing’ about the Storer deal. To be specific he had overpaid, on money borrowed via high-risk ‘junk bonds’, for the stations just as the TV industry was going into recession. When those junk bond rates soared past 17 per cent he couldn’t pay. Or as he puts it: ‘When the notes came due, we were dead.’
Gillett’s riches-to-rags-to-riches story uncannily mirrors the rise and fall of the world money markets since the 1960s. Like Tom Hicks, Gillett saw no point in thinking small. He loved the chase and got high on the risk, playing the markets, schmoozing the clients, sealing the deal. If that risk was being determined by monetary forces outside his control, so be it. He could brave it out. The prize was all.
Time magazine wrote in 1997 about the keen downhill sloper’s penchant for building his business ventures on a mountain of junk securities: ‘Gillett personally relishes skiing “steep and deep” which is not a bad metaphor for his investment style.’
When Gillett confessed to the interviewer of his weakness for moving too fast and buying too much – ‘I’ve lived my dreams, but then I blow them up’ – Time sarcastically noted: ‘How comforting that must be to his bond-holders.’
He was born in 1938, in Racine, Wisconsin, a small, affluent city on the shore of Lake Michigan, sixty miles north of Chicago. His mother came from a rich Milwaukee family, his father owned a car dealership and was a prominent surgeon. It’s fair to say the economic ravages of America’s 1930s Great Depression never paid a visit to the Gillett front door.
He went to the exclusive independent prep school Lake Forest Academy before attending the private Amherst College in Massachusetts. His first jobs were as a salesman before becoming a management consultant with McKinsey & Company, where he learnt the stratagems and slick gimmicks of the business world. As a leading Whitehall mandarin said of McKinsey & Co. when Tony Blair hired them to restructure his Cabinet Office: ‘They’re basically people who come in and use Power-Point to state the bleeding obvious.’
In 1966, aged twenty-eight, he decided to invest in sport, and made a speculative call to Pete Rozelle, the Nation Football League (NFL) commissioner, to ask about potential opportunities.
Rozelle, believing he was an heir to the Gillette toiletries empire, and thus the best his sport could get, gave him a lead on an emerging expansion franchise called the Miami Dolphins. Gillett bought 22 per cent and became the team’s business manager. Two years later, he and two partners bought the Harlem Globetrotters, the fabled basketball team, whose popularity had begun to wane. This was the kind of opportunity that stirred Gillett’s juices. A historic sports institution, on its uppers, which was failing to move with the times but which had massive potential. Ring any bells?
Even in the late-sixties Gillett realised the way to make money out of a sports brand was to maximise the power of television, which led him to come up with an inspirational idea: turning the team into a cartoon series. Hanna-Barbera’s Harlem Globetrotters began on CBS in 1970 and was an instant hit, boosting the appeal of the team and bringing advertisers to the table. Gillett used the Globetrotter franchise to build his first firm, Globetrotter Communications, which included the basketball team, the animated TV show, a marketing division, and a golf equipment manufacturer.
In 1969, Gillett bought two radio stations in Cleveland. When Globetrotter Communications went public in 1971, he used the cash to buy three other radio stations, two in Chicago and one in Detroit. Gillett sold out his stake in the Globetrotters for $3 million and began searching for companies that could be turned around rapidly.
He bought more small radio stations in Sioux Falls, South Dakota; Erie, Pennsylvania; and Bakersfield, California. He took over Packerland Packing Company, a failing beef plant in Green Bay, Wisconsin. The beef industry of the late
1970s was plagued by overproduction and a market hampered by increasingly health-conscious Americans, so Gillett shifted the focus of the company towards production of lean, low-cholesterol meats. Packerland became the first company to win the US Food and Drug Administration’s ‘light’ beef classification. Packerland’s sales soared, which impressed Gillett’s bankers, who provided him with a steady source of cash for acquisitions elsewhere. The Gillett Group, as it was then known, was born.
Early in 1981 Gillett bought his first major television station, WSMV-TV in Nashville, Tennessee. The station was the top-ratings channel locally, and competition to buy it was intense, but through a combination of charm, hard-sell and a commitment to move his family to Nashville, Gillett sealed the deal.
By now he was developing his own unique strategies for buyouts. He convinced the owners of WSMV, an insurance company, that it would save on taxes and net a higher profit if they simply gave him the station in exchange for $42 million in notes that would not pay out until 1986. The price was twenty-one times the station’s annual earnings, but within five years it was worth $180 million. Gillett was praised not just for his savvy but for his laid-back management style.
Gillett’s ownership of WSMV was marred when an investigative news series critical of government meat inspections mentioned three supermarket chains that did $100 million annual business with Packerland. But the scandal did little to halt Gillett’s success.
Between 1980 and 1986, WSMV’s operating cash flow increased from $2 million to $11.2 million, and Packerland had become a steady source of revenue for other acquisitions, providing over $100 million cash.
Gillett’s new-found wealth enabled him to buy a prestigious piece of real estate – Colorado’s huge Vail and Beaver Creek ski resorts. He started to spend his summers and winters there – often posing as a ski-lift employee to get feedback from customers – flying by private jet to the family home in Nashville.
In 1986, Gillett sought the assistance of junk bond king Michael Milken to raise over $650 million, and snapped up a dozen TV stations in the wake of liquidations and mergers throughout the broadcasting industry.
Like Hicks, Gillett was doing remarkably well (mostly with other people’s money) out of the greed-is-good eighties. He had built his multi-faceted empire during a time of deregulation and junk bond financing, and was beginning to feel indestructible. Which is never a good thing.
He had long coveted Storer Communications’ six TV stations, having known the company’s chairman, Peter Storer, since the late 1970s. Despite warnings from Milken that, at fifteen times cash flow, the price for Storer Communications was too high, Gillett bought the stations in partnership with Kohlberg Kravis Roberts (KKR). The structure of the arrangement, like Gillett’s Nashville deal, was unique in broadcasting. Gillett Holdings and KKR each contributed $100 million in equity, and the remaining $1.1 billion of the purchase price was financed by $600 million in bank loans, and $550 million in junk bonds – most of them paying no interest for seven years, but maturing at an astounding 17.5 per cent.
The six stations were held by a new company, SCI Television, of which Gillett Holdings owned 51 per cent and KKR the remaining 49 per cent. But as the Storer deal was being done in November 1987 the television industry peaked. Viewers and advertisers were moving into video and cable, earnings began to fall and Gillett Holdings’ junk bonds plunged to 80 per cent of their original value.
By late 1989, Gillett Holdings was in trouble: Gillett sold WSMV-TV for $125 million and used most of the proceeds to pay down bank loans. Meanwhile, Storer Communications defaulted on $153 million in interest on public debt. But rather than force Storer Communications into bankruptcy, Gillett managed to convince bond-holders to restructure the subsidiary’s more than $500 million bonded debt.
Storer’s financial woes bounced onto Gillett Holdings, which had serious problems of its own. By 1990 the company’s bonds had become so insecure that some traded as low as seventeen cents on the dollar. Then, in August, Gillett Holdings defaulted on over $450 million of debt. By February 1991, bond-holders frustrated with Gillett’s half-hearted attempts at restructuring filed an involuntary bankruptcy petition. When the company failed to meet the resulting court-imposed deadline it was forced into Chapter 11 bankruptcy. However, in the company restructuring that followed, savvy Gillett negotiated a $1.5 million annual salary to manage the Vail skiing operation, plus some stock options, $5 million in Gillett Holdings securities, and $125,000 per year in life insurance premiums.
With the little capital he had, he started again. After floating the Vail stock options he walked away with $32 million, which was enough to rebuild his empire.
In 1994 he bought back the meat-packing firm he’d lost and snapped up more meat-packing companies, moving beyond beef into the poultry market. He added a barge business in the Pacific and some golf courses in Montana. In 1996 he formed Booth Creek Ski Holdings, acquiring or expanding ski resorts in Wyoming, New Hampshire, California and Washington. By 2000, eight years after bankruptcy, Gillett had clawed back half of the billion-dollar fortune he’d lost through bankruptcy. And as a new century dawned he set his sights on doing what he believed he did best, and where he believed there was big money to be made – owning sports teams.
He tried to buy the Denver Nuggetts basketball team and the Colorado Avalanche ice hockey franchise, along with the stadium they play in, but was rebuffed. In 2001 he paid $185 million for an 80 per cent share in the Montreal Canadiens ice hockey team, and its 21,000-seater Bell Centre arena.
Its motto should raise a smile among Liverpool fans: ‘To you from failing hands we throw the torch. Be yours to hold it high.’ As should the track record since Gillett’s takeover of the National Hockey League’s most successful club: they’ve won nothing of note.
‘We went into a relatively hostile environment in Montreal, culturally at least,’ said Gillett. ‘We didn’t come from that community. A lot of the people knew that the club was for sale and none of the locals bought it so you obviously go in with a level of suspicion. Your first reaction is there must be something wrong with it.
‘Rather than saying to the fans “I come with the answer”, I clearly don’t. I think you’d be terribly presumptuous to come into a community like Montreal with twenty-four Stanley Cups and say “I can do it better”. I don’t think we came with an answer. I think we came with questions.’
They also arrived in the wake of another US sports owner, Jeffrey Loria, who had bought the Montreal Expos from local interests when no one else wanted them, said all of the right things about being committed to the city and to making baseball work in Montreal, before moving the franchise to Washington.
Loria was cast as a cartoon villain, the cynical foreign opportunist. And now here was another American, apparently a friendlier one, but one whose motives were instantly called into question simply because of what had gone before.
‘For the first year in Montreal, more than half the articles were about whether we were like Loria or not,’ says George’s son Foster Gillett, who moved to Montreal to help run the Canadiens (as he did with Liverpool although some would question the use of the words ‘help’ and ‘run’).
‘It took us a while to stand on our own two feet and not be continually compared to these Americans who came before us.’
Winning the locals over was a task Gillett warmed to, and he could often be seen in the Bell Centre taking up empty seats and chatting to the fans, listening to their concerns, dishing out soda pops and flattery. The Wisconsin Kid has always used charm and flattery to get his way, as the wooing of Rick Parry, David Moores and his wife, and the opening Anfield press conference were to testify. He calls people ‘sweetie’, the women who work in the offices ‘gorgeous’ and almost every English sports journalist who dealt with him tells of a similar greeting whenever they needed hard answers from him: ‘You know you’re my favourite writer. I really love your stuff …’
Gillett is small, gregarious, thinks
he has a neat sense of humour and tries to disarm all-comers with an intense personal connection. When once asked why he never wears a watch he replied: ‘It’s a personal philosophy of relationships. Whomever I’m with is the most important person in my life at that time.’ Which could have come straight out of the McKinsey manual of How To Perfect Blue-sky Thinking, Corporate Bollock-Speak. He’d go out of his way to have you believe he was the guy next door who was also your best friend ‘You can always contact me,’ he’d say, ‘my number’s in the phone book, but you’d better have a good question when you call.’ But underneath was a hard, shrewd operator. If a little mad.
Ask most English people what they made of him and you get a puzzled look, a laugh, a head-shake and an admission they could never quite work him out. He was always acting weird, spouting oblique ideas, giving rhetorical and ambiguous answers. A constantly chattering clockwork mouse, who never really told you anything.
Gillett somehow managed to perfect an evasive style which was both self-effacing and self-congratulatory at the same time. This was his reply when asked why he went into the sports business:
‘Each person in life has their own comfort zone. Some people jaywalk. And we see people dive across interstates. Other people only cross at the intersection and only do it with the lights. Maybe I’ve crossed against red more often than I should have.’
What freaked many was every time they met him he wore walking boots under his suit. The comfort footwear was down to him having both knees replaced after skiing injuries, but the muddy hikers were nonetheless off-putting.
Having been encouraged by the success of the Canadiens and bullish on the prospects of blue-chip professional sports franchises, Gillett decided it was time to think big. So he looked across the Atlantic to the country and the sport that was raking in the greenbacks like no other.