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Shannon Henry's The Download Live
Discussion with Jonathan Ledecky
Entrepreneur, "roll-up" artist, and co-owner of Lincoln Holdings.

1 p.m. EST: Thursday, April 6, 2000

Shannon Henry
Shannon Henry

This week my guest will be Jonathan Ledecky, entrepreneur, "roll-up" artist, and co-owner of Lincoln Holdings.

Jonathan Ledecky made a name (and money) for himself in corporate "roll-ups," buying several small companies in similar businesses and merging them into a larger company. His most notable project was when he formed U.S. Office Products in 1994, which ultimately consolidated some 200 office supply and service stores.

Shannon Henry
Jonathan Ledecky

Wall Street applauded his "acquired growth strategies," as Ledecky touted that the legacy he wanted to leave behind is that small Main Street businesses can compete against the Goliaths.

Today, Ledecky has expanded his business reach as co-owner of Lincoln Holdings, the Ted Leonsis-run group that owns the Washington Capitals hockey team and a stake in the Washington Wizards NBA franchise and MCI Center. Along the way, he and his partners have found out that sports management can be just as challenging as Wall Street.

Join us at 1 p.m. Thursday as Jonathan and I discuss his career, the Internet, Wall St. and the thrill and challenges of being a professional sports owner.


Shannon Henry: Hi Jon. Thanks for joining us today. Our readers have a lot of questions about different business enterprises in which you've been involved. For those who, for instance, know you from US Office Products but not as a hockey team part-owner, could you briefly give us updates on your association with these companies: US Office Products, OneMain.com, E2ENet, Lincoln Holdings, MicroStrategy?

Jonathan Ledecky: Wow. That's a big question for starters. U.S. Office Products--I have had no association with the Company since June 10, 1998, I sold 23% of my shares like every other shareholder into a tender offer that day and, like many others who believed in the Company's promise under new management, I kept my remaining 77% of my shares to this very day. Suffice it to say, I am very disappointed with the performance of my successors.

OneMain.com: I have never stepped foot into their offices. I was the seed investor. The CEO, Steve Smith, has been doing all the right things for the LONG TERM. I believe in him and have sold no shares from the original investment I made plus I bought 200,000 shares at $22 at the IPO.

E2ENet: The investor group here recently announced that it would merge into a company called U.S. Technologies. It is publicly traded under the symbol USXX. It will hopefully emerge as the third largest publicly traded internet incubator company and the Company's Chairman and CEO, Greg Earls, is building a model similiar to that utilized by CMGI and Internet Capital Group (ICGE).

Lincoln Holdings: Wow, has Ted Leonsis done a super, super job here. I told the Post that when I invested $60 million it was not just into the Capitals, Wizards, Mystics and MCI Center, but into the genius of the Michael Jordan of the Internet! And guess what...we are almost sold out for the playoffs...FANS, YOU BETTER ORDER YOUR TICKETS NOW! If you had told us the Caps would have close to 100 points and battling for the #1 spot at the beginning of the year...but more on that later.

MicroStrategy: Where do I begin here? I will wait for more specific questions. Michael Saylor is a genius of Einstein proportions. He will certainly change the world. I am on the Board of Directors.

Tampa, Florida: How will XLA differentiate itself from other internet incubators?

Jonathan Ledecky: XLA is an internet incubator that has enjoyed quite a run up lately. The CEO is a guy I went to college with, Alex Vik. Other than those two facts, I have little knowledge of it! Sorry.

Bethesda, MD: What is your method or philosophy for pricing a private company?

Jonathan Ledecky: depends on the company, is it an internet company or an old economy company. I would tell you that at the end of the day, cash flow and profit rules. Peter Lynch told me that he cannot get comfortable with internet valuations. He looked at all the internet companies with valuations in the $20 billion range. He said, "Jon, eventually those companies will have to trade at a 20 multiple, which means they must make $1 billion in profit to justify their multiples today. I don't see ALL of those companies doing that." As for private companies in the OLD economy, a multiple of cash flow is what is universally utilized. You are doing well if you get six times cash flow for a mundane business, 8 times cash flow for a growth business. Remember that the multiple is the inverse of the return expected by the investor. At 6x cash flow, the investor is willing to give you money with the expectation that they will make 16% on their money.

New York, New York: UCP announced a stock buyback program last year and stated that a large number of shares had been repurchased. Why are there more shares outstanding now than when the share buyback program was announced? The share price is much lower now than when the buyback program was announced.

Jonathan Ledecky: I think you have your facts incorrect here. I would check with the Company. UCP has suffered from the phenomenal downdraft of stock prices in the finance and leasing industry publicly traded universe. I think the last time I looked the public universe was down over 50-60% from the 52 week highs. ON the buyback program, call the company.

arlington, VA: I'm not a sports fan at all but isn't it a little embarrassing for you and Ted to be all over the airwaves like you've done something when the team continues to lose? also, did you pay Michael jordan whether or not he comes to town on a regular basis? Why does he need a place in the Ritz Carlton if he's not here and if he's not, how do they get better?

Jonathan Ledecky: Hello, are you Rip Van Winkle? The Caps have 99 points and are battling for first place in the division after being in LAST place before we bought the team. I am very proud of Ted and what he has accomplished in LESS than a year. We have no operational responsibility for the Wizards, so if you are complaining about them, I feel your pain but you should ask Mr. Pollin to come on for a chat. He is trying very hard to make them a winner and bringing in MJ is part of that philosophy. Have a nice day!

Las vegas: When US Office tanked you blamed it on the inability of Wall Street to properly value the company. However others have said that the company was properly valued and the problem was that as you grew you moved away from th core concpets of the business to many related yet non esential businesses that analysts saw having he potential to hold earnings down. Any thoughts.

Jonathan Ledecky: Hi there, I don't remember U.S. Office "tanking" under my leadership. Wall Street's investment bankers gave the USOP Board the advice that splitting the company into five parts would enhance stockholder value. The bank involved was Morgan Stanley, the leading provider of advice of this type. If people take the time to do the research, they will see that the four companies that split off of USOP have done well..they are AZTC, WORK, SCHS, and FLYR. In some cases, the market has recognized the value and in some cases the market has yet to recognize the value. The bankers indicated that it takes two years for spinoffs to start performing. The anniversary is this June.

As for USOP, it is important to note that the strategy I pursued..."think national, act local" was completely dismantled by consultants brought in by the new owners, Clayton Dubilier and Rice, after I left. My understanding is that the cash flow in that business has declined by some $60 million. I am amused by the continued villification of yours truly on chat room boards since the energy is entirely misdirected.

Shannon Henry: Since you're an investor in the company, I was surprised to hear you've never set foot in OneMain's offices. Why is that?

Jonathan Ledecky: I try to help entrepreneurs start companies. I believe that you bet on an entrepreneur and you let him or her run the company. Casting a long shadow and standing there second guessing the CEO is not a good idea. In this case, I thought OneMain's concept of consolidating rural based internet service providers was terrific and I put my money where my mouth was with a multi-million dollar investment. I believe in Steve Smith and the model he has employed at OneMain. Time will tell.

Herndon, Va: Is it true at least 15 NBA owners invited Jordan to join their teams as an owner or manager? And why didn't the Bulls make an offer.

Jonathan Ledecky: I think 15 teams is a bit overstated. MJ had serious discussions with Charlotte and Dallas and 2-3 other teams that have not been publicly disclosed. He proactively sought out Ted Leonsis because he wanted to hyper-charge his knowledge and activity on the internet and his advisors came to the conclusion that Ted was the MJ of the internet. An excellent story on Ted and MJ can be found in this month's Talk Magazine, written by the Post's David Ignatius. It's a great read. Buy it!

Clifton, VA: I know that alot has been written about your business acumen, but few people know of your contributions to the local community and to kids. For starters, I know that you have your own scholarship fund set up at Harvard. Would you care to comment about some of the things you have done locally for the are and through the Washington capitals?

Jonathan Ledecky: Thanks for noticing. I believe that it is best not to brag about community service but I am proud of the work that the Ledecky Foundation has undertaken in support of the Good Samitarian Foundation run by Art Monk, Brig Owen's Super Leaders, Darrell Green's Youth Life Foundation and Hoop Dreams. Hoop Dreams is terrific because it is run by a teacher named Suzy Kay at H.G. Woodson High School and helps send accomplished inner-city students to college. There is so much need in the DC inner city and I am glad that we have been able to raise and give away millions to such worthy causes. Thank you for asking.

Carlsbad california: what other business-industry do you have your eye on?

Jonathan Ledecky: I tried to reply here before but it did not work. Here goes again. The internet is undergoing massive consolidation quietly. The venture capitalists way over invested in similar web sites and business concepts. For example, there are 32 web sites/companies devoted to women's beauty products on line. The VC's are coming to me asking for my input on consolidation and how it works because they understand the economic theory called the Rule of Three. The Rule of Three postulates that consumers don't want hundreds of choices and the government won't allow but 1 or 2 choices. Industries in a big economy will naturally over time gravitate to three main players.

Shannon Henry: Sorry, we had a computer glitch. Keep the questions coming. We're about half-way through the hour.

Washington, DC: Congratulations on all of your business success and in steering the Caps to success. I've seen you do great things in the community, where you have singlehandedly re-built community centers in the city, supported the arts through Young Audiences, and provided scholarships to our inner-city youth through Hoop Dreams,yet you never seem to take any credit for any of these fabulous things. Why so modest, and have you ever thought about running for mayor of DC?

Jonathan Ledecky: Thanks, Mom. Seriously, my parents, my spiritual advisors, and my best friends, particularly Ted Leonsis, have said that you never have to take bows for community service. God will see your good works and recognize them. The more work I do in the community, the more successful I seem to become in business. I don't believe that is an accident. As for Mayor, we are BLESSED to have Tony Williams as our Mayor, he is a remarkable, wonderful, hard working, caring person. I pray every day for his continued success in rebuilding the city I have lived in for 17 years and love so much.

Waldorf, MD: I curious about two things. The economics and the social responsibility of owning a sports franchise.

Jonathan Ledecky: Economics of owning a sports team is that sports franchises lose money on a going concern basis and you reach into your pocket to fund the losses. However, sports teams on a CAPITAL GAINS basis have been compounding at a 14% rate since 1972 and are fabulous investments. Mr. Pollin bought the basketball team for $1 million and the hockey team for $3 million. A Basketball team is arguably worth $200 million today in the NBA anywhere and we paid close to $100 million for hockey team. As for social responsibility, sports teams today are community trusts. Ted Leonsis has said that we (Raul Fernandez, Dick Patrick, MJ) are the trustees for Washington and these teams. We are trying so very hard to bring a friendly, safe, fun environment to families at MCI Center and to one day have our players hoist up the Stanley Cup and the NBA Trophy. MJ says he wants to kiss that trophy again as an owner!

Shannon Henry: Interesting that you see consolidation ahead in the Internet business. What attributes will make one beauty site, or one pets site emerge as the predominant player in its market? And do you see consolidation too in the business-to-business web sites?

Jonathan Ledecky: It's all about mindshare. Ask anyone on the street to name five web sites for $100. They can do it. 10 websites for $1000...very few can do it! So in my worldview, the major websites...Yahoo, Amazon, Ebay, AOL/TW...win and consolidate up those other niche players that show PROFIT and PERFORMANCE.

Second thought. I think the "old economy" companies are waiting in the weeds to snarf up the good web sites that are running out of money. Pfizer or Merck could buy Drkoop.com for a song and get a robust site. Sears and WalMart will be buyers, industrial concerns will snap up snazzy B2B sites.

Shannon, it reminds me of the biotech revolution in the '80's. Everybody said that the drug companies would go out of business because of the new VC backed biotech companies. Today, most of those companies are owned by the Eli Lillies, Pfizers, Mercks, etc. of this world!

Arlington, VA: Some people have said that they think one of the reasons the Caps have been successful this season is that you are the son of a Czechoslovakian immigrant and that you can relate well to the Czech and Slovak players like Bondra, Zednik, and Bulis, as well as the other European players. Any validity to that, and why are the Czech players so good?

Jonathan Ledecky: Why are Americans so good at basketball and baseball and football? The Eastern Europeans crave hockey like we crave these sports. People treat the players you mention like GODS when they arrive home. I have watched Bondra mobbed by his countrymen as their Mickey Mantle. It's all about putting little kids on skates at the age of three and putting a stick in their hand. My Dad lives in Prague, speaks Czech and loves hockey. The players see this and the fact that I grew up playing hockey every day after school with my brother. They know that Ted and I are real fans.

g'burg: Mr Ledecky: I noticed that you are entered in Sunday's Cherry Blossom 10 miler. How does a ultra busy guy like you find time to train? good luck and I'll see you there!

Jonathan Ledecky: Wow, thanks for noticing. I run 3 marathons a year and I run about 8-10 miles a day or a 10K every day. So running in the races is great because I can mark my progress. I have taken to running marathons in other cities, a great way to see them and vacation at the same time. I did London and Dublin last year, I highly recommend it and you can go with groups that raise money for worthy charities in the process. I will see you on Sunday!

Somewhere, USA: How does one contact your for purposes of presenting a new internet startup for possible angel funding by you and or your colleagues?

Jonathan Ledecky: the best way is to just pick up the phone and call. You will find that everyone will want you to send in an executive summary. There is a great article in the Post today about two new groups of angel investors, written by our very own Shannon Henry. Start there! Read the paper, it's great that Tech Thursday has become so valuable for all of us who need relevant data on what's going on and who is shaking and baking in the DC community. Way to go, Shannon.

New Orleans LA: What do you think about Value America?
The company has taken quite a downturn, but seems to be attempting a comeback?

Jonathan Ledecky: I think it's hard to have a business model that originally had a gross margin of 1% attached to it. Can't work no matter how optimistic the market was. Now new management realizes it has a web site with name recognition and is trying to make a real business out of it. Some heavyweight folks involved here like Fred Smith of Fed Ex. I understand from the press that they are trying to raise more money. That's the big issue facing all web companies...PROFIT. What happens when there is no more financing available?!

Denver, CO: What types of businesses are you looking at to help fund? Are they in all different sectors ie: Healthcare,tech,comm...? What do you look for in these new companies that you are willing to invest in and what percentages to you take for the $$$?

Jonathan Ledecky: I am not looking to directly fund any businesses. I think the thing to do is to focus on internet incubators, public or private. The public one that I am associated with as an investor is U.S. Technologies. The stock symbol is USXX on NASDAQ. The company is located in Washington. The CEO is Greg Earls. The telephone number is 202-466-3100. He believes that it is important to look at all sectors, as do other VC's. Everyone wants to invest in STRONG managers and business concepts that are unique and niche in approach. The internet is predominant now for VC's, eventually it will swing back as it always does to another "hot" area.

Lansing, Michigan: The NHL has been gaining a lot of fans in recent years but it still remains second fiddle to football, NBA and even MLB. Why? What are the problems? and what does the league have to do to expand its reach and appeal.

Jonathan Ledecky: The NHL will do great once it figures out technologically how to bring the excitement of the live, in-arena experience to the TV screen and the internet. Everyone I take to a hockey game the first time comes away saying, "Wow, this is unbelievable, I can't believe how exciting this is in person, it looks so boring on TV." With ESPN's investment in a large TV deal, with Commissioner Gary Bettman's brilliance, and with input for internet gurus like Ted Leonsis, I think hockey will EXPLODE onto the national stage. One missing ingredient...finding and building hockey's Michael Jordan. The game needs another Gretzky but turbo-charged marketing wise. The other thing about hockey...name another game that is truly such a team sport where substitutions are made of the entire team on the fly!!

Washington, DC: As a member of DC's Jewish community, I want to thank you for everything you've done for the city. And also thanks to you and Mr. Leonsis and Mr. Patrick for signing the NHL's best Jewish player and our local hero, Jeff Halpern. What do you think of Jeff's chances for Rookie of the Year and Olie's chances for MVP?

Jonathan Ledecky: Jeff is one of the nicest people I have ever met, so kind and considerate, so charitable with his time, he visits the community leagues where he played with no fanfare, no publicity and he touches the lives of hundreds of children. He is very, very private about his faith and we respect that but he is truly a mensch. Olie is UNBELIEVABLE, but it is his leadership off the ice that is the key ingredient. I have never seen a bunch of individuals in all my years of business come together with a common goal and aspiration as the Caps. They are the everymen of the NHL, grinders, team players, not a top scorer or superstar among them. My congrats to Dick Patrick and George McPhee for the chemistry they helped Ron Wilson create. My congrats to Ted Leonsis for being such a smart owner and partner to recognize that meddling by the owner was NOT the way to do business. The Cup will land here one day, maybe not this year, but one day, thanks to those gentlemen.

Arlington, VA: From what I understand about your upbringing, yours is truly a Horatio Alger story. What motivated you to succeed in life? Now that you've achieved success, do you ever plan to write a book about your life and lessons learned?

Jonathan Ledecky: My parents...they gave me unconditional love and taught me from the cradle that achievements beyond my wildest dreams were possible if I channeled my energies and talents and stayed humble. I am motivated to make a difference in people's lives for the betterment of society and to leave this earth a much better place than I found it. I enjoy helping people and I try to give back as a way of saying thank you to God and to all those people who took the time to help me when I was coming up the ladder. As for a book, I would rather work with young successful entrepreneurs and help them find philantrophic ways to give back to the community. Giving truly is getting.

Washington, DC: Good afternoon Mr. Ledecky,

I understand you're on the National Commission on Entrepreneurship. Can you tell us a little bit about the commission? It seems like entrepreneurship is where the action is. Many thanks for appearing. Ken Berlack

Jonathan Ledecky: The NCOE is awesome. Mario Marino is one of the commissioners and I was chosen as a commissioner as well. We are trying to make sure that the government HELPS entrepreneurs, who (particularly in light of Microsoft), now understand that being passive about government policy could actually hurt entrepreneurship!

Shannon Henry: Since you're part of the decision-making process at MicroStrategy, can you tell us who Michael Saylor's closest advisers are? What advice are they giving him now, after the accounting issue?

Jonathan Ledecky: Michael is committed to finding the very best people in the accounting profession to advise him. He has assembled a top flight group of advisors to help the company get through its current situation. Eventually, through communication like the letter in the Post yesterday, MSTR will get its story out there. This is a company with limitless potential and dedicated employees. Michael is correct in taking the long view and ultimately will win. I think the Tyco International story is very similar here. The stock got pounded on accounting issues and today less than six months later is above where it was trading when the story hit. The symbol is TYC.

Shannon Henry: What are the similarities and differences in Internet management and sports managment? What business lessons have you learned that you're bringing to the Caps?

Jonathan Ledecky: Great question, Shannon, and I am amazed at the large number of questions we won't be able to answer that have come in.

Ted has really championed the notion that there will be convergence between internet assets and sports assets. Sports teams are fabric of the community and BRANDS. For internet companies to succeed, they must build COMMUNITY and BRAND. The key is to build affinity between the sports team's brand and good will and the internet community that is being built.

Ted has largely done the first phase of this with the phenomenal success of www.washingtoncaps.com, the most robust sports web site according to most sports internet people. If you haven't tried it, do so. It is the prototype of what you will see in the future. It is so neat to watch other teams, including the Redskins, copy features of it. What do they say...imitation is the finest form of flattery.

Shannon is telling me we have time for one or two more questions.

Washington: In general terms, what are the types of pressures that forces industries to welcome consolidation

Jonathan Ledecky: The pressure is usually that a well financed, innovative force swirls into an industry and creates havoc and the need for change. In office products, it was the rise of Staples and Office Depot that created enormous pressure on smaller players to consolidate their purchasing power or face elimination. On the internet, it will be the UNLIMITED financing power of AOL-TW, Yahoo, Amazon, EBay that will force those who can't get Wall Street to finance them to embrace their brands or face value destruction.

You have been a wonderful on-line community today. Again, my apologies for not being able to answer everyone's question. Perhaps Shannon will have me back one day. Goodbye and God Bless!

Shannon Henry: Thanks, Jon, for a great wide-ranging discussion. We'll stay tuned. And thanks too for all the terrific questions, sorry we couldn't get to more of them.

© Copyright 2000 The Washington Post Company

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