By Thomas Heath
Washington Post Staff Writer
Wednesday, November 2, 2005
First in an occasional series
Venture capitalist Frederic V. Malek appears to have done all the right things in assembling a group of 14 fellow investors to purchase the Washington Nationals. He recruited rock-star names such as former secretary of state Colin L. Powell and Wall Street banker Vernon E. Jordan Jr. He won the backing of D.C. Mayor Anthony A. Williams. And he elevated local business wunderkind Jeffrey D. Zients from an investor in the group to a partner in charge of its day-to-day operations.
But as Major League Baseball nears a decision on who will be the team's next owner, Malek's front-runner status also has a downside. Some involved in the sale process quietly suspect the Malek-Zients team of orchestrating media and political attacks against fellow bidders. These include sowing doubt about the reliability of Indianapolis media mogul Jeff Smulyan, a past owner of the Seattle Mariners, and Washington entrepreneur Jon Ledecky, whose partnership with billionaire George Soros drew criticism from leading Republicans on Capitol Hill.
The suspicions ran deeply enough that Commissioner of Baseball Bud Selig alluded to the matter during an interview with Malek and Zients two weeks ago at Selig's office in Milwaukee, according to sources familiar with the meeting. Malek and Zients declined to comment on the meeting.
The Malek-Zients group denies it has sought to undermine any bidders, and there is no public evidence that it did.
"We believe Major League Baseball has run a fair and rigorous process, and we have never engaged in anything negative," said Winston Bao Lord, executive director of the Malek-Zients group.
But the concerns have contributed to the air of unpredictability surrounding MLB's selection process, which some senior advisers to Selig say could conclude in time for a Nov. 16-17 owners meeting in Milwaukee.
Malek's group, which since 1999 has been at the forefront of local efforts to bring a baseball team back to Washington, has in recent months sought to keep as low a profile as possible to protect what it once thought was its favored status and deflect criticism that it was campaigning against rival groups, according to people close to the Malek group, who spoke on condition of anonymity because the sale was at a sensitive stage.
Among the eight bidders, Malek has the longest and deepest ties to Washington's political and business communities -- and is savvy in the ways the capital works. Malek, 68, served in the Nixon White House, managed George H.W. Bush's 1992 presidential reelection campaign and was a onetime partner with President Bush in owning the Texas Rangers.
A graduate of the U.S. Military Academy and Harvard Business School, Malek today heads Thayer Capital Partners, a District-based investment firm that manages several billion dollars and recently sold one of the District's largest hotels, the Marriott Wardman Park. He also is a past president of Marriott Hotels and Northwest Airlines.
"He's got a killer Rolodex," said J. Willard "Bill" Marriott Jr., chairman and chief executive of Marriott International, who has done business with Malek for years. "He knows his way around town. He knows everybody."
Malek is particularly close to the Bush family. He and the president made millions when they and other investors bought the Rangers for $86 million in 1989 and sold them nine years later to investor Tom Hicks for $250 million. While owning the team, they successfully oversaw construction of a new stadium built with public and private money.
Malek's group, known as Washington Baseball Club, began taking shape in 1999 after he was approached by Paul M. Wolff and Stephen W. Porter, longtime Washington lawyers and civic activists, and asked to join their effort to bring a baseball team to the city. At the time, Wolff was chairman of the D.C. Sports and Entertainment Commission's budget and finance committee and Porter was chairman of the D.C. Chamber of Commerce's baseball exploratory committee.
Malek invited three wealthy and well-connected friends -- America Online mogul James V. Kimsey, developer Joseph E. Robert Jr. and Franklin D. Raines, then-chairman and chief executive of Fannie Mae -- to join the venture. Meantime, Wolff and Porter stepped down from their positions on the D.C. sports committees to become minor investors.
"They've been out there a very long time and shown real commitment," Barbara Lang, head of the D.C. Chamber of Commerce, said of the Malek group.
The group has grown over the years as Malek has sought to draw more financial backers to help pay for the Nationals, whose price has been set by baseball at $450 million. The league bought the team, formerly known as the Montreal Expos, for $120 million in February 2002.
Malek added Jordan, a senior adviser to former president Bill Clinton and now senior managing director of investment bank Lazard Freres & Co., LLC, along with former Washington Redskins defensive back Darrell Green and Dennis Hightower, a former executive with the Walt Disney Co. Powell joined the group this summer. Powell has been a close friend of Malek's since 1973, when, as a White House Fellow, he served as Malek's executive assistant at the Office of Management and Budget.
Frank Carlucci, secretary of defense under Ronald Reagan and now chairman emeritus of the Carlyle Group, a McLean-based private equity firm, said Malek has a knack for surrounding himself with talented, young people, many of whom handle the details while Malek concentrates on the big picture.
"I wouldn't expect he would be sitting there nine hours a day telling you how to steal third base," Carlucci said.
To handle the team's business details, Malek and his partners turned to Zients, 38, an investor who made a fortune taking the Advisory Board and the Conference Board, both research companies, public for business partner David G. Bradley. Zients and Bradley, who is owner of Atlantic Monthly magazine, joined the group in 2002.
Zients and Malek have pooled about $80 million of their own money toward the $450 million sale price, according to sources familiar with their bid, making them the lead investors. If Malek and Zients buy the Nationals, Malek will be the managing partner, or "control person," for the first three years, at which point Zients will take over, according to sources familiar with the bid.
Baseball officials, who spoke on the condition that they not be identified so as to avoid the appearance of seeking to influence the sale, have said they are impressed with Zients's energy and intellect, although they are concerned he has no experience running a baseball team. John Delaney, founder of CapitalSource, said he has seen Zients's attention to detail from when the two have done business together, said baseball officials shouldn't worry. "If baseball chooses him, they will get someone with high integrity, who is very committed to the community, really smart, good at operations and a decent person," he said.
Zients joined the Advisory Board, which then served a broad spectrum of corporate clients, 14 years ago as a lieutenant to Bradley. Within three years, Zients was Bradley's partner. The peak of their collaboration was the public sale of the Advisory Board, which made them both millionaires.
Zients's wealth allowed him and his wife to set up a foundation that donates money to several nonprofit groups in the District and humanitarian projects abroad. They also were able to trade in a two-story colonial in Spring Valley for a mansion off Foxhall Road.
Lang recalled Zients coming to her office for an hour-long meeting last year during the tumultuous debate by the D.C. Council over legislation to build the Nationals a $535 million stadium on the Anacostia River.
Zients was so familiar with the legislation, Lang said, that he talked with her about ways to convince council Chairman Linda W. Cropp (D), whose vote was crucial, to support it.
"A lot of life is grinding out the details, and Jeff is great at grinding out details and at operations," Delaney said.
The group added several more high-profile investors last summer, including Northern Virginia financier W. Russell Ramsey. Ramsey scaled back his investment after the group's bid escalated from $335 million to $450 million, according to people familiar with the bid.
At the same time, the group brought in more financial heft with the additions of Dennis W. Bakke, co-founder of AES Corporation, an Arlington-based power company, and Chicago-based financier David A. Donnini.
Although the Malek-Zients group may be the "prettiest" and best connected, as one baseball insider described it, there are some in and around the league who are concerned over its size. Most sports leagues, including baseball, prefer one major owner who owns up to half the team and has deep pockets to cover losses. People familiar with the Malek-Zients partnership said the managing partner, which is Malek, has clear authority to run both the financial and administrative side of the team, including requiring partners to cover losses.
Benjamin Jacobs, founder of JBG Companies, a major Washington area developer and a close friend and business associate of Malek's, said losses are unlikely.
"A losing business enterprise is not one that over the long term will sustain one's interest," Jacobs said. "Fred has the right balance. He won't exploit it, but he will make it work to the point where it is a point of pride for the city and for the area."
Staff writer David Nakamura contributed to this report.