By Tarik El-Bashir and Thomas Heath
Washington Post Staff Writers
Wednesday, November 25, 2009
Abe Pollin's death Tuesday not only marked the end of an era in Washington, it also signaled a potential seismic shift in the town's professional sports ownership landscape.
Former AOL executive Ted Leonsis, who purchased the Washington Capitals from Pollin in 1999 and in recent seasons has transformed the NHL franchise into one of hockey's hottest tickets, has the first right of refusal to purchase the Washington Wizards, Verizon Center and the Baltimore-Washington Ticketmaster franchise from Pollin.
If the deal is completed, it could put Leonsis atop an extensive sports empire.
Leonsis and his company, Lincoln Holdings LLC, own 44 percent of the Wizards, Verizon Center and the Ticketmaster franchise, with Pollin's Washington Sports & Entertainment owning the majority.
"When Lincoln Holdings bought the Capitals and a substantial percentage of Washington Sports & Entertainment from Mr. Pollin in 1999, he gave us the exclusive right to purchase the remaining portion of the Wizards, Verizon Center and the local Ticketmaster franchise," Leonsis said in a statement released Tuesday evening. "That agreement established an orderly process for conducting that transaction and it is our intention to follow that process.
"Now is not the time, however, to discuss that subject; our focus now should be on mourning a great man who has done so much for our city," the statement concluded.
Leonsis entered into the partnership with Pollin a decade ago, when Leonsis and then-partner Jonathan Ledecky purchased the Capitals for $85 million. They also bought a piece of the Wizards and Verizon Center, then known as MCI Center, and a right-of-first-refusal to purchase the rest of Pollin's sports holdings if and when Pollin decided to sell or died.
Ledecky eventually sold his shares back to Leonsis. Since then, Leonsis has put together an 11-member partnership in Lincoln Holdings that has extensive financial resources. Lincoln has gradually bought parts of the Pollin empire, including the WNBA's Mystics.
Leonsis has maintained a cordial and respectful relationship with Pollin for years, while losing an estimated $100 million on the Capitals over the past 10 years, according to sources close to Leonsis. But Pollin's death could present economic opportunities for Leonsis and his investors.
The group already has a plan in place to finance the transaction, though details remain sketchy. The price tag for the three entities has not been negotiated, according to sources with knowledge of the situation, but talks could begin within a week.
For years, Leonsis's Capitals have been at a disadvantage as a minority partner and tenant in Verizon Center. With Pollin exerting majority control over the building, he was able to direct the vast majority of advertising, food and beverage, club seat and suite revenues to Washington Sports & Entertainment.
The Capitals were virtual renters in the building and lost money year in and year out because the team could not share in those revenue streams. If Leonsis's group takes control, it will share in those revenues and achieve economies of scale such as sharing offices, advertising and other administrative operations that could result in substantial savings.
The Capitals' relationship with Verizon Center also has been the subject of controversy through the years, from the condition of the ice to the scheduling of games in the playoffs. If Leonsis were to assume control of the arena, many of those issues could be alleviated.
"Owning both teams and the arena gives you much greater ability to maximize and leverage revenue streams because you no longer have conflicts that would be in place if you don't own all three," said Jeff Citron, a Toronto-based corporate finance attorney and sports business consultant. "If you don't own all three, you might be unable to capitalize on sponsorships and revenue that would otherwise be unavailable to you."
There may be other opportunities for Leonsis's group as well: Control of an NBA, NHL and WNBA franchise in the Washington region presents numerous media possibilities, including enough programming to get more leverage with cable companies such as Comcast and regional sports networks such as MASN. Leonsis's group could start its own regional sports network.
Leonsis's partners in Lincoln Holdings include Raul Fernandez, former chief executive officer and founder of Proxicom; Richard Fairbank, founder and chairman of Capital One; Jack Davies, former president of AOL international; Jeong Kim, head of Bell Labs; former software executive Rick Kay; Black Entertainment co-founder Sheila Johnson; real estate entrepreneur Dick Patrick; Michelle Freeman; Mark Lerner, son of Nationals owner Ted Lerner; and attorney George Stamas.
The most recent estimate by Forbes Magazine, which was almost a year ago, put the value of the Wizards at $353 million, which ranked them 15th out of the NBA's 30 franchises. The team earned a $14.9 million profit on $118 million in revenue, according to Forbes's estimate, which covered the 2007-08 season.
By that measure, the rest of the Wizards would cost around $200 million, not including Verizon Center.