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Handicapping The Nationals Ownership Selection (Finalists)

14th April 2006

On Weds. I handicapped the bidders for the Washington Nationals that have the most remote chance of landing the franchise, today I’ll go over those that have the inside track to land the club.

As the final days wind down for a selection of a new owner for the Nationals, we’re getting a clearer picture of what Commissioner Selig, the 29 owners that own the team collectively, and the District of Columbia have in mind for a new owner.

While there may be differences in opinion between them, here’s some of what has become “profile” of the ownership group (not in any particular order):

  • Willingness to pay $450 million for the club;
  • Strong local ties to DC;
  • Dynamic that allows for MLB and the District to have some level of comfort in regards to how the financial makeup of the group winning the bid is structured;
  • Minority ownership component;
  • Dynamic that fits within MLB’s internal working environment, and the particulars involving the situation with the Nationals;

With that in mind, here’s the final 3 — plus a wild card — that have the best chance of landing the Nationals, now possibly as early as next Friday.

Jeffery Smulyan Group (20:1) - Smulyan has had a couple of key factors in his favor, and a couple working against.

Smulyan serves as Chairman of the Board of Emmis Communications Corporation, an Indianapolis—based radio, TV and magazine publishing company with operations in 24 U.S. markets and Hungary and Belgium. He has close ties to Selig and White Sox owner Jerry Reinsdorf through his dealings with the communications industry.

These two factors work in Smulyan’s favor due to the complex deal that MLB negotiated with Baltimore Orioles owner, Peter Angelos, for the creation of a Regional Sports Network (RSN), now called Mid-Atlantic Sports Network (MASN).

That deal has been viewed by many (including members of Congress) as being a poor value for the residents of the District due to carrier issues (Comcast refuses to show Nationals games, thus blocking out a substantial portion of the local viewing public from seeing their team), as well as a poor deal in the structure of how the Nationals and Orioles conduct business with the RSN (Angelos currently controls 90% of MASN, and pays the Nationals $20 million a year to control the rights to their newly created broadcast area. The Nationals’ stake in the Mid-Atlantic Sports Network (MASN) will increase to 33 percent over the next two decades).

With Smulyan’s communications background he could be a good fit to deal with these issues.

But, his ties to Emmis have created problems, as well.

Smulyan’s bid has a $100 million component tied to Emmis Communications, and therefore, its shareholders.

Two primary share holders in Emmis (Richard Lane and Peter Lautmann, money managers who together own 4.3% of Emmis’ stock for clients and shareholders of Emmis) have warned that they object to Smulyan’s intent to use Emmis’ capital to invest in the Nationals.

This also outlines that Smulyan, himself, does not have the requisite capital to make the deal happen.

A double-edged component of the Smulyan bid is the fact that he owned the Seattle Mariners from 1989-1992. During that tenure, Smulyan threatened to move the Mariners to Tampa Bay if a new facility was not arrived at. He sold the franchise after three years, part of which was due to his lack of financial capital.

With Smulyan being from Indianapolis, and the view that his ownership tenure in Seattle was a negative, members of the DC Council have been mostly down on Smulyan.

While Smulyan’s communication ties and relationship to Selig, Reinsdorf and prior ownership a plus in some cases within MLB, the lack of strong capital and lack of local ties to the District make Smulyan the dark horse at this stage.

Frederic V. Malek/Jeffrey D. Zients group (7:1) – The Malek/Zients group has been the favored group by District Mayor Williams since as early as 1999, so much so that a written agreement of endorsement has been made.

The group that is being put together by Malek is extremely strong, with near rock star appeal. Former secretary of state Colin L. Powell and Wall Street banker Vernon E. Jordan Jr. are just two members of the group.

Malek, a former minority owner of the Texas Rangers with now President George W. Bush, has been a baseball insider, as well as an insider in politics (he served in the Nixon White House, managed George W. Bush’s 1992 presidential reelection campaign).

Malek heads Thayer Capital Partners, an investment firm based in the District that manages several billion dollars in assets, and last year sold the Marriott Wardman Park hotel. He is a past president of Marriott Hotels and Northwest Airlines.

Malek was approached in 1999 by Paul M. Wolff and Stephen W. Porter and asked to join what was then known as the Washington Baseball Club.

Malek then invited several high-profile individuals to join the group, founding chairman of America Online James V. Kimsey, Joseph E. Robert Jr.,Chairman and Chief Executive Officer of J.E. Robert Companies (“JER”), an independent private commercial real estate company that has a book value of over $40 billion in seven countries, and Franklin D. Raines, then-chairman and chief executive of Fannie Mae.

In 2002, Malek added Jeffery Zients who had made a fortune through two research companies (Advisory Board and the Conference Board), by turning them public, for business partner David G. Bradley. Bradley joined the WBC at that time, as well.

The Washington Post reported in Nov of last year that Malek and Zients have pooled roughly $80 million of their own money into the bid, making them the lead investors. If they win the bid, Malek would become the managing partner.

Here is a complete list of the WBC investment group, with links to their bios:

Partners:

Executive staff:

So, what’s the downside for this group?

As mentioned prior, Malek was part of the Nixon administration, serving as White House personnel chief. In 1971, Nixon became convinced that a “Jewish cabal” was running the Bureau of Labor Statistics. Nixon ordered Malek to draw up a list of Jews in the department. A list of 13 members of the Bureau of Labor Statistics were submitted to Nixon, with two members reassigned due to the report.

Since Malek’s role in this event was exposed by Washington Post reporters Bob Woodward and Walter Pincus, Malek has repeatedly expressed remorse over the report, and has said that he tried to inform Nixon that no such Jewish cabal existed.

Still, the wounds remain, and have added some political underpinnings that have been a negative for the group.

To add to this, it was reported last year that the Malek/Zients group orchestrated media and political attacks against fellow bidders, most prominently, the Smulyan and Ledecky bids.

It became such a serious issue, that it was reported that Commissioner Selig asked about the matter in face-to-face interviews with Malek and Zients.

Regardless of the cons with this group (and as Selig has said himself, there are pluses and minuses with all the bidders), they remain a strong candidate to land the Nationals.

Theodore N. Lerner group (5:1) – Ted Lerner has been trying to get into the MLB ownership game for more than 30 years (he showed interest or bid on the Orioles and Giants in recent years). As he was quoted in the Washington Post, “After the heartbreak of seeing our Senators leave the city twice, I never thought that I’d ever see big league baseball return to D.C. in my lifetime,” Lerner said. “Now that it is back, I am deeply committed to assuring that it remains here, is played in a first-class facility which people can enjoy, and is operated in a way that brings the community a common source of pride and joy that serves as a community bond. I hope this will be a lasting legacy I can leave to my family and to the community where I was born and raised.”

This correspondence, however, came via email, and really has been about the most revealing insight into the man heading the group that, as of today, seems to be in front of the pack to land the Nationals.

The Lerner group has been extremely stealthy in their approach. Little is known about their group. Their quiet nature is by design. As Lerner said, “We do not think a political or PR campaign was the best vehicle. We have approached our bid, as we do all of our business ventures, by putting forth our experience, qualifications and credibility, and then allowing for a determination to be made of whether others desire to do business with us. We would like to be judged worthy to own and operate the Nationals based on who we are and what we can offer to assure the long-term stability and success of the franchise.”

The most high profile addition to the group would be Fox Sports anchor James Brown, who is also a Washington, DC native.

While full details of the group have not been disclosed, family members of Ted Lerner make up the brunt of the group’s dynamic. His son, Mark, and sons-in-law Edward L. Cohen and Robert K. Tanenbaum are key parts of the group.

The Lerners run Lerner Enterprises and is among the largest retail and commercial property management firms in the Washington, DC area (they control an empire that includes 20 million square feet of office, retail and commercial property in the Washington region, as well as 7,000 apartment units in Maryland and Virginia. The family developed such prominent sites as Tysons Corner in Virginia, White Flint Mall in Maryland and Washington Square in the District). Ted Lerner is the Chairman of Lerner Enterprises and is controlling the bid for the Nationals. His son Mark, would eventually take over the Nationals.

As the Post further reported: Mark Lerner is also a partner in Lincoln Holdings, which owns the Washington Capitals, the Washington Mystics and 44 percent of Washington Sports and Entertainment, the holding company for the Washington Wizards and MCI Center. Ted Leonsis is the majority owner of Lincoln Holdings.

The appeal of the Lerner bid may be the central control of the funds. Chief concerns have been the lack of minority ownership, and the almost “hands off” approach to communication with members of the DC Council, and the Mayor’s office, but there’s a wild card in the mix. Reports are that the minority ownership component is not an issue and will be made public at the proper time. As for communications and a relationship with baseball, there’s a wild card in the mix that seems to place the Lerner group at the head of the pack

Stan Kasten (3:1) – The one winner in all of this seems to be Stan Kasten. Kasten was the first person in pro sports history to hold the position of president of three different teams simultaneously. He was TBS Vice-President for sports teams and President of the Atlanta Braves, Atlanta Hawks, and Atlanta Thrashers; as well as Chairman of Philips Arena.

To add to this, Kasten was a key part of the development of Turner Field, which would bode well for any group looking to make sure that they have someone in their stable that can work through the difficult development of the new Nationals ballpark.

The feeling has been that the dynamic of the Nationals ownership group will be somewhat similar to when the Red Sox ownership group was put together by Selig in 2002. At that time Charles Dolan was seen as the frontrunner, but Selig assembled a group of then Marlins owners John Henry, Larry Lucchino, and Tom Werner that eventually landed the Boston club.

Kasten is viewed by many as being a key component to running the day-to-day operations of the Nationals, should he be a part of the winning group.

Today, Thomas Heath of the Washington Post reports what many had been hearing for some time: Kasten will merge part of his group in with the Lerner family bid.

By bringing in Kasten, Heath reports that the, “Lerners and Kasten, which sources said have been in the works for weeks, would bring Kasten and several of his minority investors to the joint effort.”

By bringing in Kasten’s minority ownership component (which details are not known at this time), the Lerner group may have passed the last hurdle.

Also, it had been discussed prior that Kasten would be brought into either of the front running groups to finalize the structure of the winning bid. If that is really the case, the formalization (which the Post is reporting is being finalized between the Lerner and Kasten group), should point the way to a Lerner/Kasten marriage as the winning bid.

Insight into the Nationals bidding process

It should be noted that regardless of the outcome of the winning ownership, Stan Kasten has agreed to be interviewed by me the day after the ownership is announced. The vast majority of the interview will revolve around the Nationals ownership bid.

The interview will be published on Business of Baseball.com, and we will be working to have the turnaround on the interview in 24 hours.

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