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Anschutz leads AEG’s new charge

Revitalized owner takes more diversified approach

One evening in October, Phil Anschutz stood beside a table of hors d’oeuvres in the party suite atop the Broadmoor World Arena. Wearing a houndstooth jacket over a sweater and sporting his Stanley Cup ring, he spoke with a cluster of sponsors as well as family members and their friends who had come from Denver to see AEG’s Los Angeles Kings play a preseason game against the Colorado Avalanche.
 
The company founder and guiding spirit was clearly enjoying himself as his broad smile barely wavered.
A decade ago, Anschutz’s privately held company consisted of little more than the Kings, the arena they played in, and some soccer teams.

Phil Anschutz ended efforts to sell AEG in 2013.
Photo by: NBAE / GETTY IMAGES
Since then, it has evolved into a global conglomerate that owns and runs venues and other prime real estate, provides content and affiliated services, and sells ticket and sponsorship inventory around the world.

That evolution has accelerated since March 2013, when Anschutz suddenly aborted a sale process and surprisingly cut ties with Tim Leiweke, who had served as the company’s president and CEO since its inception and was a major catalyst for its success. AEG has since shifted its emphasis away from sports in favor of real estate investments and the various revenue streams that work off of them. “Real estate is the anchor now,” conceded Dan Beckerman, the longtime AEG executive who replaced Leiweke as CEO.

The company’s new focus coincides with Anschutz’s re-engagement. His smile, on display throughout the event in Colorado, was also of recent vintage, the result of a disc fusion that has ended years of back pain so intense that it threatened to end his business career. “I think anyone who knows him can see that it’s totally different now,” said his son Christian, 38, a Denver developer. In Colorado Springs, Christian watched his father, who will turn 75 in December, remain on his feet for more than an hour before the game, meeting and greeting with no evident strain. “There’s a whole different smile on his face,” he said. “He was suffering before. Now, the suffering is gone.”

Not so long ago, that suffering had led Anschutz to try to sell AEG. By the time the Kings won the Stanley Cup for the first time in June 2012, he had become all but disengaged from the company, according to several employees. The potential clinching game should have been a time of jubilation. Instead, Beckerman noted as he accompanied his boss to the game in New Jersey that night, the pain was draining the pleasure out of the event for Anschutz. “He just looked miserable,” he recalled.

Those intensely creative, half-day meetings that had been an Anschutz hallmark in the years following his purchase of the Kings in 1995 had become increasingly rare. “He’d get fatigued,” Beckerman said. “We didn’t have as much flow. It was easy to see that something wasn’t right.”

Cashing out appeared to be the answer. Observers expected the sale price of AEG, a company with some $300 million of annual income, to reach between $5 billion and $7.5 billion. Anschutz reportedly was hoping for $10 billion, a figure that would have been based less on an earnings multiple than the company’s future plans. In September 2012, he announced that the company was for sale.

Real estate investments, now the anchor for AEG’s business, are nothing new for the company. Staples Center and L.A. Live helped lead the way in revitalizing downtown Los Angeles.
Photo by: JW MARRIOTT LOS ANGELES / L.A. LIVE
What happened next continues to be debated. Some believe that Leiweke, whose role during the sale process was to pitch the company to potential buyers, favored those who would retain him at AEG after the sale. Others maintain that he became convinced that AEG’s tangible assets would not be able to command the price that Anschutz desired. In any event, Leiweke, who would not comment for this story, inserted himself into the sale process, which was being handled by Blackstone. “He was told [by Anschutz] not to deal with the buyers,” said an industry insider who knows both men well. “And he ignored that and did.” The man who was largely credited with building and shaping the public image of AEG was suddenly out in a tense departure.

“Very noisy,” is how Anschutz would describe the process to the Los Angeles Times in March 2013, his only on-the-record interview in decades. (Anschutz declined to be quoted for this story.) By then, the company was no longer for sale and Leiweke had departed, leaving well more than $100 million of equity behind, according to someone close to the process.

Anschutz could have proceeded with the sale under different auspices. While he didn’t get the number he wanted in the first run, he wasn’t fully intent on selling. Five weeks before, in February 2013, he finally had the risky surgery he had been delaying for years. As he healed, he found that he could walk without discomfort.

“The day after the report from the doctor confirmed that the operation had definitely been a success, he pulled the company off the market,” Beckerman said.

Since then, Anschutz has pushed forward with AEG, creating double-digit growth in each of the last two years, with 2014 on pace to be a record year for the company, according to Beckerman. “When Tim left,” said Los Angeles Lakers COO Tim Harris, “a lot of what you read was, ‘They’re no longer a growth company, they’re no longer going to be an acquisition company.’ That has proved to be anything but the case.” But the company is clearly more low-profile, as Leiweke was a forceful advocate for AEG’s influence and reach, and without his charismatic public profile, the company garners far fewer headlines with Beckerman at the helm. “Different styles,” Harris said, who has worked alongside both men.

The effect, purposeful or not, has been to show the world that the company doesn’t require Leiweke’s famed creativity and drive to grow and prosper. The shift in gears has been noticeable — and perhaps unsurprising. Anschutz is a businessman with a sense of urgency who already has shown a willingness to spend billions of dollars on transformational projects, and is freshly energized by the return of his health and stamina he thought he had lost forever.

■ ■ ■

If it didn’t own a single team, AEG would still be a major player in sports. Apart from Anschutz’s minority interest in the Lakers, which is a personal holding outside AEG, “they are a stakeholder in our league,” said NBA Commissioner Adam Silver, as AEG is a partner in NBA China. “They have a vested interest because of the number of facilities they own and operate. There’s probably no more important partner the NBA has, apart from perhaps our media partners, than AEG.”

The NHL, too, perceives AEG as far more than just a franchise-holder. “Look at the way they’re able to leverage their position and relationship as a premier entertainment company in the entertainment capital of the world,” said John Collins, the league’s COO. “Just to be able to partner with them on how we think of our European strategy — to have guys in the league who have significant business in that market, own teams and arenas in that market — is a tremendous asset for us.”

“One of the criticisms I used to hear was that AEG was a mile wide and an inch deep,” said Scott Blackmun, CEO of the U.S. Olympic Committee and a former AEG chief operating officer. “Now people are beginning to see that’s not true. There are real assets there. Deep assets.”

That makes the teams, crucial at the start, less relevant today. In terms of their revenue, they become less important to AEG’s total picture every year. From controlling more than half of MLS, six of 10 franchises at one point, AEG now has only the Galaxy — as well as a 50 percent interest in the Houston Dynamo that the company has been eager to sell. The minor league and European sports teams and the holdings in the various tours, races and events serve more to provide inventory for venues than as stand-alone businesses. The success of Kansas City’s Sprint Center without the NBA or NHL team many assumed it would get is further evidence that the model works.

The Stanley Cup wasn’t heavy lifting for Phil Anschutz, finally pain free after back surgery,
Photo by: GETTY IMAGES
That leaves the Kings. Rumors that the company would entertain offers for the NHL’s reigning champions, first floated publicly by news reports around the time of last spring’s Stanley Cup Final, continue to swirl. If the Clippers, second-tier NBA tenants in the same building, are worth $2 billion, the Kings would likely fetch a large fraction of that, even without the Staples Center. And the growth areas of AEG’s portfolio, such as AXS and AEG Facilities, would be largely unaffected absent the team. Anschutz is engaged with the club’s management, getting briefed by Luc Robitaille, the team’s president of business operations, on NHL issues and other Kings affairs. But at heart, he isn’t really a sports fan. “No owner in the history of the NHL could have gotten off the ice faster when they won last year,” said someone who attended the game. “He’s not married to things like that.”

Still, despite industry murmurs of a potential Kings sale, an upcoming initial public offering, even a spinoff of the real estate holdings into something resembling a real estate investment trust, AEG executives insist that Anschutz has no plans to divest of anything. Instead, AEG continues to expand and build across multiple platforms. “I forget what it’s like to be in the real world,” Beckerman said, “where you have one project and you do that and you take the capital and you do something else. This company doesn’t work like that.”

The course of its future can be plotted on the map on the north wall of the office of Bob Newman in Los Angeles, who runs its facilities arm. Pushpins show the markets in which the company has an existing interest owning, running or servicing a stadium, arena or theater, or is considering buying or building one or negotiating a new interest. Yellow signifies the venues completed or with a signed contract. Red is for potential projects.

There’s plenty of yellow on the map, but a lot more red. Two blue pins, in Dublin and Bristol, stand out. “We ran out of red,” Newman admitted. AEG is represented everywhere but Africa, with a concentration in Western Europe and South America. “We want to be in great markets,” Newman said. “And in the greatest buildings in those markets.” To date, that has meant owning or running major U.S. arenas in, among other places, Newark, N.J.; Cincinnati; Louisville, Ky.; Minneapolis; Kansas City; Seattle; San Antonio; Pittsburgh; Oakland and, of course, Los Angeles, plus major international venues such as the O2 in London, the O2 World in Berlin, the Mercedes-Benz Arena in Shanghai and Tele2 Stadium in Stockholm and three soccer stadiums in Brazil: 129 properties in all, approximately a third of which are owned by AEG.

The list of projects in various states of completion and negotiations is also impressive. It includes a $200 million investment in Paris’ Palais Omnisports de Paris-Bercy; an L.A. Live-like activation of the district around Berlin’s O2 World arena, which AEG already owns and operates; a partnership with FC Barcelona to better utilize its Camp Nou stadium site; and a Las Vegas arena, which will open in 2016.

Dan Beckerman, who became CEO after the sudden departure of Tim Leiweke, leads the new lower-profile version of AEG.
Photo by: AEG
It’s easy to see why the company believes it all starts with real estate, and while facilities is just one AEG division, in the revised architecture of the company, its growth serves as an engine for the integrated whole, with various disciples working together to a far greater extent than ever before. “We’re a hardware company and a software company,” Newman explained. The hardware are the venues AEG owns or operates, augmented by holdings such as Colorado Springs’ Broadmoor Resort and the Regal Theaters that Anschutz owns. The software is the content that gets booked into those venues and/or provides inventory: for sponsorships, suites and premium seats, naming rights, television deals, and the AXS ticketing business, owned in partnership with Cirque du Soleil.

Content includes, of course, the Kings, Galaxy and Dynamo, but also hockey teams in Berlin and Stockholm, the Amgen Tour cycling event, and various minor league and international interests. It also includes a growing portfolio of non-sports entertainment, from its ownership of tours of acts as diverse as Justin Bieber and Leonard Cohen to its former stake in the King Tut exhibit that toured America for a decade. “As an industry, we have two gigantic players, Live Nation and AEG Live,” said Gary Bongiovanni, the CEO of music business trade publication Pollstar. “AEG is capturing at least part of the revenue streams from a lot of different places, which is a great model to have.”

And that, AEG executives say, is exactly the idea. “We are part of the way entertainment is consumed around the world, in the most important destinations,” boasted Todd Goldstein, AEG’s chief revenue officer. “And now that we’ve got a ticketing company, we’re part of that ecosystem, too.”

■ ■ ■

The intertwined businesses give partners a portfolio of relationships to access. The Professional Bull Riders tour, for example, provides bookings for arenas that AEG manages throughout the hemisphere. It also shares ownership of the second-tier Velocity Tour with AEG. Now comes a bull riding feature film that, PBR Chairman Jim Haworth hopes, will premiere at an AEG Live venue next April. As Haworth and his COO, Sean Gleason, toured the Broadmoor’s newly opened Cloud Camp lodge on a mountaintop 3,000 feet above the city recently, AEG’s world seemed at their disposal. They discussed using Kings players to promote a live bull riding event in Hermosa Beach, Calif.; a corporate retreat at Cloud Camp; and further AEG partnership in PBR events in Brazil.

For a less integrated company, the Las Vegas construction might be nothing more than an arena project. Now, at a recent biweekly meeting about its progress at AEG headquarters in Los Angeles, Ted Tanner, who oversees the real estate division, was joined by executives from the AEG Live music promotion arm, the Global Partnership group that will be selling naming rights and AXS for ticketing, Newman from facilities, and even the Kings’ Robitaille since the NHL has expressed interest in potentially putting an expansion team in the city.

Already, AEG Live books more acts into Las Vegas venues than any other company. Now it will be able to coordinate top bands playing, say, Staples Center on a Thursday and Friday and the new arena on a Saturday. (The 17,000-seat Grand Garden Arena, which would have been a competitor to the new arena, is owned by MGM, AEG’s partner in the new arena.) Where will it find the next generation of young talent? At its music festivals that it’s creating or buying at a rapid pace, such as the seminal Coachella Valley Music and Arts Festival, which it created, or Toronto’s Edgefest and Scotland’s RockNess. And many of those festivals also work as real estate investments. “The alignment of content and real estate is when you unlock the value,” Beckerman said.

AEG sold $375M in Ritz-Carlton branded condos.
Photo by: AEG
The business integration has become so extensive that no outsider could pick out all the synergies in play for a simple preseason hockey game. In Colorado Springs, the Broadmoor World Arena is run by AEG Facilities. Its ticketing is handled by AXS. Its naming rights to the arena were sold by AEG’s Global Partnerships division to the Broadmoor, which had been purchased by Anschutz as a personal holding for $1 billion in late 2011. The game was even covered by the Colorado Springs Gazette, which happens to be owned by Anschutz.

The synergies that work on a macro scale, including sponsors such as Toyota and Coca-Cola that have relationships in multiple venues, also operate locally and regionally. The $375 million of Ritz-Carlton branded condominiums that AEG just finished selling across Nokia Plaza from Staples Center has provided a new layer of consumer interaction with the company’s holdings. “We have condo owners who are premium-seat holders at Staples Center,” Goldstein said. “Now they’re looking at premium-seat inventory in Las Vegas when we open there. Some have become frequent guests at the Broadmoor. And now, one of them is about to open a restaurant downstairs at L.A. Live.”

“We’re a difficult company to get your mind around,” Beckerman acknowledged. “What we do can’t be explained to someone in two minutes in an elevator.”

■ ■ ■

One afternoon recently, Los Angeles businessman, city planner, public policy expert and erstwhile politician Steve Soboroff sat eating lunch in a posh downtown restaurant. More than the food or the setting, he marveled at the restaurant’s very existence. When he ran for mayor in 2001, such a place never could have survived.

“At that time?” he said. “Downtown consisted of various landmarks surrounded by a bunch of blight.”

Now downtown Los Angeles is thriving. Real estate values have soared. Parking lots, which were valued at $35 a square foot when Staples Center opened in 1999, cost $900 a square foot today, according to Soboroff. Anschutz gets much of the credit. “Nobody has taken more of their own money and invested it and risked it in this city,” Soboroff said. “No one.”

The $3 billion capital investment by Anschutz has drawn tourists and area residents to downtown. The new hotels and condominiums have led to shops and restaurants, like the one where Soboroff was enjoying pasta. “With the coming of Staples Center and L.A. Live,” said Herb Wesson, the president of the Los Angeles City Council, “we have witnessed a transformation.”

The projects didn’t just reconfigure downtown. They changed the shape of AEG. “Because of L.A. Live, what used to be the ‘teams business’ has really become the real estate business,” said the Lakers’ Harris in the lobby of the JW Marriott hotel — also owned by AEG — that sits across from Staples Center. “When we first moved here, there was a parking lot where we’re sitting. At the time, that seemed normal. That seemed like what you do with an arena. Now that seems naked. L.A. Live has changed the prevailing thinking as to the highest and best use of land around an arena. You don’t need to take that prime real estate and devote it to parking.”

The use of that prime real estate in downtown Los Angeles set the company apart. “AEG is unique in the world,” said the NBA’s Silver. “They’re unique because of their global footprint and the real estate concept they’ve developed that is extendable around the world. They’ve created winning models. But for AEG, we wouldn’t be playing regular-season games in London. We might not be playing our preseason games in Europe and Asia. And virtually every city I visit these days, I hear talk about [a potential] ‘fill-in-the-blank Live.’”

Now comes the last phase of the project: the activation of AEG’s remaining acreage adjacent to the Los Angeles Convention Center, which the company also operates. For years, that parcel has remained empty while the NFL dithered over whether to bring a team or teams back to Los Angeles.

Los Angeles Kings fans flock to L.A. Live before a Stanley Cup Final game this year, another example of connectivity among AEG investments.
Photo by: GETTY IMAGES
Recently, the Los Angeles City Council granted AEG a six-month extension to a 2012 agreement giving rights to wedge a $1.2 billion, 72,000-seat stadium (Farmers Field thanks to a 30-year, $700 million naming-rights deal worked by Leiweke) between Staples Center and a reconfigured Convention Center. If that doesn’t work out, AEG has a Plan B that includes a second hotel and renovation of the Convention Center, a major capital investment that, Soboroff believes, might actually make more money for the company than a stadium would.

But there’s a reason why Plan B is Plan B. Two sports franchises in history have been sold for $2 billion, Beckerman likes to note. Both of them, the NBA’s Clippers and MLB’s Dodgers, play within a few miles of where Farmers Field would sit. “The NFL has the potential to grow all of our divisions,” he said.

Most other proposals that would bring the NFL to Los Angeles rely on whoever is building a stadium owning at least a significant piece of a team. On the flip side, any team coming to Los Angeles would want more control over the revenue streams from a building. That’s where it gets complicated, but inside AEG, many believe the company has so many opportunities for synergies with an NFL tenant, the numbers could work even without substantial franchise equity.

“The power of the NFL brand is so strong,” said Tanner, the senior vice president of real estate. “It supports the economics that we can use to do a whole lot of other things.”

There is a sense of renewed traction of bringing a team back to Los Angeles, with the Rams, Chargers and Raiders most often mentioned. Whether that team ends up downtown in Farmers Field, at a Hollywood Park site owned by the Rams’ Stan Kroenke, or somewhere else remains undecided. But AEG executives maintain that they’re more optimistic than they’ve been in a while, and Anschutz is actively involved in the effort.

Bringing football back to Los Angeles and overhauling the aging Convention Center would cement Anschutz’s legacy as the man who resurrected the downtown of one of the world’s most important cities. But those who know Anschutz dismiss that as a motivation. “If you think this guy cares about his legacy in L.A., that’s nonsense,” said an industry executive who knows Anschutz well and believes he would still sell the company today if the right offer was made.

More relevant, perhaps, is that an NFL team would be the engine most likely to get AEG’s valuation to the $8 billion to $10 billion that Anschutz is said to think it should be. That’s crucial for any potential exit scenarios, whether they involve selling AEG, opening it to an IPO or estate planning. It also seems to be the financial payoff that Anschutz has decided he needs to reach. “I’ve seen him in meetings,” said the industry executive. “When he doesn’t get the number he wants, he goes crazy.”

“He’s a businessman, and a very successful one,” said Wesson, the city council president. “I don’t know about legacy projects, and I certainly can’t speak to tax planning. I just know that, generally, when he gets his mind set on something and follows through on it, the result is very, very positive for everyone concerned.”

Bruce Schoenfeld is a writer in Colorado.

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