Ted Leonsis's bid for the Wizards and Verizon Center is thrown in question

By Thomas Heath
Washington Post Staff Writer
Thursday, January 28, 2010; A01

The holding company that owns a majority of the Washington Wizards and Verizon Center says it has the right to put the franchise and arena on the open market, throwing into question attempts by former AOL mogul Ted Leonsis to take full ownership of the sprawling regional sports empire.

The news will probably complicate what has been a civil negotiations process between representatives of Leonsis, who owns the Washington Capitals, and the estate of the late Abe Pollin, who cobbled together the holding company, Washington Sports & Entertainment, over five decades. Pollin died Nov. 24.

The events point to an unraveling of what many thought would be a smooth transition from Pollin to Leonsis, who had been a solicitous, loyal junior partner to Pollin over the past decade.

Representatives of Leonsis and Washington Sports had been in discussions from early this month until last week, when talks between the sides ended without an agreement. They are thought to be more than $100 million apart in their respective valuations of a package that includes the National Basketball Association's Wizards, Verizon Center and the local Ticketmaster franchise.

Some estimates have put the combined value of the entities at well more than $600 million; others say it's closer to $500 million.

The Pollin family and the Leonsis group have been reluctant to make any public statements, hoping to agree on price in a timely manner without acrimony or litigation. The deal is being watched by the NBA and other team owners because the outcome could reset league franchise values.

Washington Sports' intention to assert what it considers its right to put the team and arena on the market came in a memo Tuesday to employees from Peter Biché, the company's president of business operations. The memo acknowledges that Leonsis -- who owns 44 percent of the Wizards and Verizon Center in addition to 100 percent of the Capitals -- has the right to match any offer submitted to the Pollin estate.

But in the memo, Biché says that no one has an exclusive right to negotiate a purchase of the Wizards, Verizon Center and Ticketmaster. Leonsis says that his Lincoln Holdings investor group has an exclusive period to reach a deal, sources familiar with the discussions said. Leonsis thinks that period is still in effect, the sources said.

One source close to Leonsis said in an e-mail that his investors were "surprised and disappointed" when they saw the memo because "it did not mention the exclusive appraisal process in the contract that the parties had started and is designed specifically to result in Lincoln's full ownership and control."

A spokesman for the Pollin estate, Ed Tagliaferri, declined to comment. Capitals spokesman Kurt Kehl said Leonsis and his group had no comment. All sources for this report spoke on condition of anonymity because they were not authorized to comment publicly on the deal.

Both sides have hired bankers to advise them. Leonsis retained Allen & Co., a New York boutique investment bank. The estate's trustees -- Pollin's widow, Irene; son Robert; and longtime attorney David Osnos -- have hired Goldman Sachs.

The purchase could be crucial for Leonsis, because Verizon Center generates revenue that could put an end to a decade of financial losses for his Capitals of the National Hockey League.

Leonsis bought the Capitals, as well as a share of the Wizards and what was then called MCI Center (it was renamed in 2006) from Pollin in 1999. Leonsis's stake in Washington Sports has increased over the years and includes ownership of the Mystics, Washington's professional women's basketball franchise.

When Leonsis bought the hockey team, he and Pollin set conditions that would create a path for Leonsis and his investors to buy the basketball team and Verizon Center upon Pollin's death.

"At the time of the 1999 purchase, a process was established for the exercise of this purchase option. That process will begin now and it will move forward as expeditiously and prudently as possible while respecting the Pollin family," said an internal memo sent by a Washington Sports executive to company employees Nov. 25, the day after Pollin died.

Under the agreement, Leonsis has 10 business days from the day discussions begin to reach a deal to buy the rest of Washington Sports. That negotiating period expired Jan. 20, at which point an appraisal process was to follow. Leonsis signed an appraiser this week; Tagliaferri declined to comment on whether the Pollin estate had hired an appraiser.

If the appraisers for each side cannot agree on the value for the team, they will select a third appraiser to broker a price.

Sources said Leonsis thinks that the third appraiser would probably set a price acceptable to both sides. He also thinks that the third appraiser's assessment would bind the Pollin estate to sell at that price. The sources said Leonsis thinks that the only time the team can be put on the market is if he passes on the third appraiser's price.

Even then, the Leonsis camp said, his investor group would have the right to match any outside offer. Or he could sell his 44 percent of the Wizards and Verizon Center to the new buyer.

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