From the time he was named president of Playboy Enterprises Inc. in 1976, Derick J. Daniels has been carefully pruning the conglomerate, which under the solicitous gaze of founding father Hugh Hefner had expanded in the late 1960s and early 1970s with the frenetic energy of, say, a family of bunnies.
But recently, with the ax-wielding Daniels poised to sever some of the company's unprofitable segments, British authorities stole his thunder and dealt the company what some financial analysts figured was a near-fatal blow. On Oct. 5, London licensing magistrates ruled that Playboy was "not a fit person to hold a gambling license."
To understand how the news from London shook Playboy's Chicago headquarters, just look at the company's recent financial disclosures.
According to Playboy's recently filed 10K annual report, 85 percent of the company's fiscal 1981 operating earnings came from the casinos, up from 63 percent a year earlier. More troubling, however, is that the bad publicity from Britain comes at a time when the license to operate its recently opened $135 million casino-hotel in Atlantic City is under review by the New Jersey Casino Control Commission.
The London magistrates' decision grew out of a police raid on two Playboy gambling clubs that took place, appropriately enough, just before Easter. At the hearing, the police and the gaming board alleged that some high rollers enjoyed millions of dollars in illegal credit and the after-hours companionship of Playboy Bunnies. Playboy attorneys admitted only to technical gambling law violations.
Playboy could have appealed the ruling, but instead the company decided to sell off all its gambling interests in England, where it has operated since 1965. Its holdings included three gaming clubs in London, two casinos in Manchester and Portsmouth, six bingo parlors and 75 off-track betting shops. The sales price, agreed to in principle, was $32.8 million.
No sooner was the London deal revealed than Daniels' ax fell on two unprofitable domestic hotel ventures. On Nov. 20, Americana Hotels agreed in principle to pay $42 million for two Playboy resort hotels in Lake Geneva, Wis., and McAfee, N.J.
The British sales, plus $20 million in cash that Playboy will withdraw from England, and the two hotel deals along with sales of other smaller parts of the company, will leave the corporation extraordinarily cash rich. If all goes well, Daniels, as chief operating officer of Playboy, will have about $95 million to invest by early next year.
Says Daniels, "If we blow it, we have no one to blame but ourselves."
Reflecting the concern of Wall Street, which has been down on the Playboy stock since the news came from London, Daniels is a bit defensive about how the company will fare without the extraordinary earnings from its British gambling operations. That's not surprising, however, considering their contribution to Playboy's bottom line.
Fortuitously, a week after Playboy signed the agreement to sell the British gambling operations the company published first-quarter earnings of $5.5 million, off from $7 million only a year earlier. As if planned, the major reason for the fall-off was a sudden decline in the earnings of the gaming operations. Meanwhile, the company's magazine operations, including Playboy, which have gained new importance with the departure of British gaming, improved by nearly 30 percent from a year earlier.
"This company was not created on the gaming tables of London," Daniels asserted during an interview in the Playboy suite at the Drake Hotel here.
An intensely persuasive executive whose strength, according to a Playboy associate, is his ability to make others do his bidding, 52-year-old Daniels earns nearly $500,000 a year. With 1 percent of Playboy's outstanding stock, he is the second largest individual shareholder after Hefner, 53, who owns 67.3 percent, according to the 10K.
The son of a Washington physician who grew up in that city, Daniels waxes nostalgic about spending most of his working life in the newspaper business, first as a journalist and later as an executive. Just before joining Playboy, he was a vice president of Knight-Ridder Newspapers Inc.
"I don't try to pawn myself off as a financial genius," he says, "but if you've been a successful managing editor of a newspaper, you can run any business in the world. If you can't learn to add and subtract, you can learn to hire people who can."
From his fur-lined slippers to his tweed pants to his open-necked shirt, it's clear that Daniels has made the leap to the glossy pages of Playboy, leaving his newsprint period far behind.
As Daniels tells it, Playboy Enterprises, started with the founding of the magazine 28 years ago, has reached a crossroads.
"We're redirecting the company, going back to grow out of its natural roots again," he says, without revealing, if indeed he knows, precisely how he will use the $95 million to make this happen. "We'll put the money in things that fit -- communications and entertainment operations."
Like many other companies in the late 1960s, Playboy had lots of money to spend. "Playboy was making so much money it was looking for places to stack it," is how Daniels puts it.
What Playboy did was acquire or start hotels, theaters, a record company, Oui magazine and movies, among other things. Then came the 1974-1975 recession, and then Daniels was hired. "The last five years," he says, "has been like changing pants in the middle of a 100-yard dash."
Gone are the movies, the theaters, the records and the two big resort properties, if the sale goes through as planned. The company's resort hotel in Jamaica has been empty since 1977, and with no buyers in sight, it remains a casualty of the island's unsettled recent political history. Playboy has written off the property, according to Daniels.
Oui magazine, which never found a market of its own, played a key role in last year's disastrous performance by the magazine division. With Playboy newsstand sales off 16 percent and Oui sales off 20 percent, the pre-tax income of the magazine division plunged $8.7 million from a year earlier, a 59.2 percent drop.
With Oui now sold to Goshen Printing Co., Daniels is optimistic about the magazine division.
He says recently he glanced at a copy of Oui. "I wish it didn't keep the name," he sighs. "It's gone into pubic warfare and other places it didn't go when it was part of Playboy."
Playboy is also very optimistic about a new magazine called Games, which it acquired two years ago. Its circulation has risen from about 400,000 to 650,000, according to Daniels. Next fall, Games will go from bimonthly to monthly publication.
Playboy Books are now aimed at women because they buy 70 percent of the books, Daniels says. Playboy clubs are profitable, he says, but have gotten a bum rap because their figures are lumped together in the financial reports with the unprofitable New Jersey and Wisconsin hotels.
The bunny trademark is also popping up in stores from the Ginza to High Street as the company licenses a broad array of goods bearing the famous rabbit logo.
But clearly the company's biggest hopes for future earnings rests with its relatively modest investment in cable television programming. It has a joint venture with Charles Dolan's Rainbow Programming Service in Woodbury, Long Island, to produce "adult" programs on what will eventually be known as the "Playboy Channel."
Hefner, who dabbled in television with the unsuccessful Playboy After Dark show, is taking the lead in developing the TV operation, which will cost the company about $5 million over the next five years. "The concept is for a channel that will have good journalism, interviews, roadmaps for survival in this difficult world. We'll feature women and we'll have nudity," says Daniels.
But that's the future. More immediately there is the question, to be resolved soon, of whether the company's name was tainted by the recent unpleasantness in London and whether it will be forced out of Atlantic City, a joint venture with the Pritzker interests of Chicago. That would be a brutal setback to Daniels' efforts to rebuild the bunny empire.
As Steven Eisenberg, a stock analyst with Bear, Stearns & Co., puts it, "Daniels is the man on the spot." CAPTION: Picture 1, Playboy Enterprises President Derik Daniels: Pruning the conglomerate; Picture 2, Derik Daniels on prospects for investing $95 million for Playboy: "If we blow it, we have no one to blame but ourselves. Associated Press Photo by Nancy kaye for The Washington Post