Investors May Make Other Pollin Deals
Washington Post Staff Writer
Friday, May 14, 1999; Page E1
The $200 million that two local entrepreneurs will pay for the Washington Capitals hockey team includes money to retire MCI Center debt and allows them to strike other deals that could enlarge the pair's stake in Abe Pollin's sports businesses, sources familiar with the deal said yesterday.
America Online Inc. executive Ted Leonsis and Washington entrepreneur Jonathan J. Ledecky have agreed to buy the Caps and gain minority positions of slightly less than 20 percent in Pollin's other sports franchises, including the Wizards basketball team, and properties such as MCI Center in the District and US Airways Arena in Landover.
Sources said part of the purchase price includes money that could be paid to unidentified minority partners of Pollin if they choose to sell their stakes in the Wizards or the sports venues. Pollin is very private about his business operations and has not spoken about others who may participate in the deal.
Leonsis and Ledecky said yesterday in telephone and e-mail interviews that they are paying for the deal entirely in cash and are not taking on debt to finance it.
"We all have the pockets to do that," Ledecky said. "It's not an issue."
Leonsis said: "I have cash to use. I am not paying anything in stock."
Neither Leonsis nor Ledecky would provide more financial details about the deal.
A spokesman for Pollin's company said the firm would not comment on the financing of the sale of the Capitals or related properties.
Leonsis has the majority position in the group, with about 60 percent of the deal, while Ledecky is investing a sum equal to about 32 percent. Capitals President Richard Patrick will convert his existing shares in Pollin's private company, Washington Sports & Entertainment, into about an 8 percent stake in the business, the sources said.
Leonsis and Ledecky also will receive options to purchase the remainder of Pollin's assets upon his death or when he might decide to sell the rest of his businesses. Sources said Pollin structured the deal in this way to allow for a possible auction of the Wizards and the other assets, given the recent rise in sports franchises' values.
Sports industry sources said Pollin may have wanted to sell the Capitals to investors such as Leonsis and Ledecky because he needed cash to service the debt he took on to finance the MCI Center. It is not clear how much of the debt will be paid off by the new investors.
Pollin personally financed the $175 million-plus it took to build the center, eschewing public funds, and bankrolled the construction with loans from NationsBank. Pollin said that to get the loans he pledged as collateral most of his other properties.
Last year, Pollin sold two management contracts to operate Baltimore Arena and a sports facility in Cleveland to the MSG entertainment group, which owns Madison Square Garden and a cable TV network of the same name. That deal may have signaled a need for cash, said one source familiar with Pollin's businesses. Though the contracts were small ones, their sale was symbolic as they had given Pollin effective control of sports and entertainment venues from Baltimore to Northern Virginia.
"It was a big, big sign there was trouble," the source said. "You don't give up these things unless you need cash."
But Ledecky said Pollin faced no pressure to sell, and Pollin said Wednesday that he chose Leonsis and Ledecky because he liked them, even though he believed he could have gotten a higher price.
Leonsis sold his Florida magazine and marketing company, Redgate Communications, to AOL for $45 million in 1994 and helped develop content such as the Motley Fool investor site for the popular online service.
In the past few years, Leonsis has been an active seller of AOL stock, which has soared from $5 a share two years ago to as high as $175 a share last month before a recent sell-off. In a 1997 filing with the Securities and Exchange Commission, the last for which Leonsis showed up as one of the major holders of AOL stock, the company reported Leonsis owned more than 319,000 shares, which at the time would have been worth about $30 million. That same stake today would be worth $423 million.
Leonsis said yesterday he owns less than one half of 1 percent of AOL stock. But at today's prices, such a stake could be worth up to $700 million.
The energetic entrepreneur also has a stake in Proxicom, a Reston company that helps companies develop Web sites, worth about $2.4 million, and unexercised options in USA Floral Products, a company that Ledecky helped create and on whose board he serves.
Ledecky has founded and invested in several "roll-ups," in which small companies in the same industry are bundled into a larger company. Ledecky recently sold about 60 percent of his stake in Building One Services, a Washington-based chain of office-building construction and maintenance firms, netting about $34 million. Ledecky, who has said his net worth is $200 million, said he has profited from the strong stock market with his private investments.
Putting small amounts of cash into each of the ventures he has launched, Ledecky owns stock worth millions of dollars after the companies sold shares to the public. But Ledecky and other investors have lost money on the stock of his companies in the past year. His latest venture, OneMain.Com, a Reston-based Internet service provider, is the only one of his companies whose stock is selling for more than the price at which the shares were first sold to the public.
Staff researcher Richard Drezen and staff writers Jerry Knight and David Vise contributed to this report.
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