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Part I

Hicks’ pre-2003 domestic sports agenda:

When George Bush left as the visible persona of the Rangers to run for and be elected as governor of Texas , he placed his other assets in a blind trust. However, Bush kept his stake in the Rangers until Hicks purchased the team. Now, for the murky stuff.

Hicks is, as has been mentioned, a leverage buyout specialist and a very wealthy Texas individual. Hicks first appeared on the public scene when he donated $17,500 to Ann Richards, who was the Texas governor at the time. In 1994, Richards appointed Hicks to the Texas Board of Regents.

However, in 1994 George Bush defeated Richards in the election for the governorship of Texas . Hicks’ appointment to the Board of Regents was now contingent upon Bush’s okay. A month after Bush won election to be governor Hicks gave Bush a $25,000 “campaign contribution”. Hicks was appointed to the Board of Regents and Bush gained one of his biggest financial supporters in the process. Eventually, Bush also used the governorship’s authority to give Hicks use of “enormous latitude to use the university’s assets—which are supposed to be public funds—to invest in ventures of his own choosing”.

Bush did this by creating the University of Texas Investment Management Company (UTIMCO), which was initially funded with $9 billion of the university’s assets. UTIMCO was technically separate from the Regents, but was still theoretically under their control. In reality, UTIMCO was under Hicks’ control and while the Regents had the power to oversee and overrule Hicks they usually went along with whatever he decided to do with UTIMCO’s funds. In addition, while the Board of Regents was essentially a public organization with open meetings and published reports, UTIMCO was not required to open its meetings or publish any reports and was itself free of any scrutiny from the public or the press. UTIMCO’s own website said it is “the first external investment corporation formed by a public university system”. The UTIMCO board was being chaired by a private investor who was still making deals for his own firm. And while he was making these deals he was overseeing the investment of state government and therefore public money, often with his firm's supposed competitors. This arrangement obviously provides Hicks with an advantage that not many, if at all any, other firms had in the business world. The fact was that the chairperson of Hicks, Muse, Furst and Tate had access to confidential information concerning other leverage buyout management companies and partnerships that came to UTIMCO seeking money to invest. That now meant Hicks had what would be otherwise unavailable details of who was doing what and with how much money on a daily basis. Armed with that privileged information Hicks could approve or not approve hundreds of millions of dollars in financial deals with the only possible constraint on Hicks decisions being the governor's other appointees to the Board of Regents.

Hicks as the chair of UTIMCO had sway over approximately $13 billion of the University of Texas investment funds and there are reports that say he, through one means or another, placed some $1.7 billion in private investments. Of that $1.7 billion about $205 million was diverted to funds managed by Hick’s business associates.

According to the Houston Chronicle:

In 1996, UTIMCO recommended committing $15 million to The Beacon Group III - Focus Value Fund LP. UTIMCO board minutes report Hicks asked for the amount to be raised to $25 million. Beacon had received over $15 million when the staff of UTIMCO “found” a conflict that violated Texas law. The SEC discovered that Hicks sat on the board of Stratford Capital Partners that was in the process, with Beacon in buying a chain of theatres. Stratford was a Hicks, Muse, Furst and Tate affiliate.

In 1997, Evercore capital partners, a NY investment-banking firm, received a $40 million commitment from UTIMCO. Within nine months, Evercore was the financial advisor to NBC when the TV network entered into a $1.7 billion joint venture with a Hick’s firm to purchase LIN Television Corporation.

In 1996, the leverage buyout company Kohlberg Kravis Roberts & Co. (KKR) “1996 Fund” received a $50 million commitment from UTIMCO. Sixteen months later KKR announced a joint venture deal with Hicks’ investment firm to buy Regal Cinemas for $1.1 billion. The money KKR used for the joint venture with Hicks came from the 1996 Fund according to SEC filings.

In 1998, American Securities Partners, a NY leverage buyout firm, received $30 million in investment commitments from UTIMCO. Ten months earlier, American Securities Partners had sold its ownership interests in Community Pacific Broadcasting L.P. to Hicks, Muse, Furst and Tate and Capstar Broadcasting Partners.  

I wrote earlier to remember the name Clear Channel and here is the reason: Capstar Broadcasting was run by R. Steven Hicks, Tom Hicks’ brother. The brothers have had strong interests in national communications companies, and some deals that have been proposed (some sought after by trustbusters) have reached the billions. As mentioned earlier Clear Channel Communications/AMFM (owned by Hicks, Muse with Tom Hicks as the vice-chair) is the largest chain of radio stations in the United States . Hicks, eventually, was made the vice-chairman of Clear Channel. Clear Channel's chairperson was Lowry Mays. Mays name is significant because he was also on the board of UTIMCO.

(Hicks and his brother also founded AMFM, a communication company that ran radio stations before being bought out in 1999 by Clear Channel which now virtually monopolizes radio with 1200 stations throughout the US according to published reports.)

For the record, as far as I know, there was never anything illegal about what Hicks did with the University’s funds, however, there were certainly many questions that revolved around the tactics and methods that Hicks utilized to ‘invest” the University’s money and assets. For years UTIMCO operated under a shroud of secrecy and was said to be protected from inquires by the Texas Attorney General. Moreover, until the Texas Legislature intervened, UTIMCO, under Hicks’ primary guidance, used the University funds without any need for public disclosure whatsoever. However, depending on who’s writings or postings you peruse, anywhere from about $525 million to about $1 billion was lost due to poor/failed  investments by the time the Legislature did look into UTIMCO’s activities.

What the lawmakers did find when they proceeded with their investigation was a systemic history of insider and special interest investments that went to companies run by political donors and patrons with close ties to Hicks and Bush. In 1999, Hicks due to heat from a published article in the Houston Chronicle that examined these deals resigned from UTIMCO. (See sidebar for some examples of Hicks investments while chairing UTIMCO.)

The deals that were formulated and transacted under the mentorship of Hicks and his succeeding chairperson, when Hicks stepped down from the position in 1997, Donald Evans, by no means benefitted only certain political cronies of George Bush or his party but also greatly enhanced the bank account of Hicks himself. Again, the method by which a leverage buyout is accomplished is by using other peoples/organizations money and charging a fee while using the most minimum of your own money in the investment. The principle behind the leveraged buyout market is very costly actually – many millions of dollars are paid off the top of the capital to the partners of the management firm that runs the fund… a firm such as the Hicks owned firm of Hicks, Muse, Furst and Tate. As the disclaimers often say in those familiar advertisements on radio and TV “performance may vary…” and as such money can be lost instead of gained but the contract obligations that were agreed to when joining the “buyout fund” stay the same. In addition, the annual fees and charges are collected from the investors up front and that means 1% and often more paid to the managing firm’s general partners and that cuts into the net rate of return that might be earned by the investors. Profit that is also shared with the general partners.

When UTIMCO was in the newspapers and drawing attention from the state legislature pressure was building for UTIMCO to reveal more and more about what was being done with the University, and thus the public’s, money. The increasing questioners wanted to know how the money was being invested and they wanted to hear about the rates of profit and loss and how that effected the investments for the University of Texas .

And this in itself was another “murky” area of “fact”. The rates of profit and loss are data that is listed by UTIMCO as "internal rate of return”, (IRR). IRR is a criterion whose accuracy in depicting profit and loss is taken into question by some financial experts.

In 1998, Forbes magazine wrote, "there is no standard way of calculating IRR, so returns are easily manipulated.... In just about every case, investors must rely on the general partner's (my italics) say-so in valuing illiquid investments that are not publicly traded."

In 1995 when Tom Hicks made his first move from the corporate offices of the business of various commercial enterprises to the corporate office of the business of sports when he brought the NHL Dallas Stars for $84 million, the acquisition itself was structured as a variation of a leveraged buyout with about 70 percent of the cost of the team being borrowed funds from financiers who were granted a secured interest in the team. In every day people language, the debt that was incurred to buy the Stars is similar to when a person takes out a mortgage to buy a home – but in this case, it is a sport team that is the collateral and not a house.

As is evident from some of the investment deals Hicks is attached with as a UTIMCO board member Hicks, is, also, acquiring dozens of radio and television businesses. In addition, he also tries to acquire the Dallas Mavericks, a financially troubled NBA franchise but misses that opportunity to another buyer. However, in return he and the successful buyer, Ross Perot, Jr, agree to build a new arena for the two teams.

A minority owner of the Mavericks happens to be Richard Rainwater, who was a main partner in MLB’s Texas Rangers before Hicks acquired the team. Under an agreement with Perot Jr., Rainwater's Crescent Real Estate Equities Company can earn a $10 million bonus after the construction of a new home for the two teams. In addition, the two owners of the Dallas teams expect local taxpayers to put up most of the money for their new arena just as the taxpayers did in Arlington to construct a baseball stadium for the Rangers.  

In 1997, Governor George W. Bush signs legislation that allows Texas cities to impose new taxes for the financing of sports facilities. Within months, of the legislation being signed the citizens of Dallas are persuaded to approve a referendum to build a $230 million dual-purpose hockey and basketball arena. That deal adds millions of dollars of value to Hicks's hockey team and Richard Rainwater's real estate company. However, it was Hicks's next acquisition that brought an enormous and unexpected windfall not only for Rainwater but also for George W. Bush. Hicks wanted the Texas Rangers, and he was willing to pay a premium price.

As mentioned in this article earlier, George Bush, in 1994, defeated incumbent Ann Richards for the governorship of Texas . In 1993, Bush resigns as a member of the Harken board (http://www.cnn.com/ALLPOLITICS/time/1999/06/14/bush.groove.html & http://www.bibliotecapleyades.net/sociopolitica/elite/HarkenGate.htm) to pursue his eventual successful election run. By 1998, Bush had served four years as the governor of Texas and was gearing up for his reelection campaign. He was also ready to sell off his stake in the Texas Rangers. In 1998, Bush and his co-owners sell the team that they had originally brought for $86 million, to Tom Hicks for about $150 million. Hicks also paid about another $100 million for the stadium lease, all its financial rights, and a very large piece of land around the stadium, which was ripe for economic development. The total cost of the deal amounts to $250 million. Bush, who had borrowed about $600,000 to buy into the Rangers, should have had a return of about $2 million. Bush, an elected official, received about $15-million.

According to the Texas Ethics Commission, in 1995, When George W. Bush became Governor of Texas his stocks and other assets were placed into a blind trust per Texas law. He did not place his general partnership in the Rangers into that trust. His reasoning was that to do so would have meant a change in the ownership of the team and therefore would have required a vote of the other MLB owners and that “was not needed since he was essentially the owner of the Rangers”. Therefore, when Hicks brought the Rangers in 1998 Bush’s share was paid to him rather than into his blind trust.

Originally when Bush borrowed the aforementioned $600,000 to pay for his approximate 1% share of the team there was supposedly an arrangement that as the general managing partner that if the team sold and made the owners a certain profit percentage above the original purchase price Bush would be rewarded with an incremental percentile share of the team. When the team, the stadium lease and the land around the stadium was sold to Hicks for $250 million Bush had created the desired profit percentage for the other owners and they in turn raised his share in the Rangers to 6%. George Bush’s share of the sale price was now about $15 million or 25 times more than his original investment. 

In certain circles eyebrows were raised (1) because not placing his team share in a blind trust was a violation of Texas law and (2) because under the usual circumstances Hicks would only be able to give money to Bush through a donation to his campaign fund. In fact, a multimillionaire with multiple businesses giving millions of dollars to an elected official would normally cause state and federal regulators to cast an investigating eye towards such a transaction. But through the sale of the Rangers, a certain multimillionaire with multiple businesses did, do just that, i.e., place many millions of dollars into the bank account of the then governor of Texas , George Bush.

So it is now that Hicks buys the Texas Rangers and in the process pays the Rangers ownership group the aforementioned $250 million and receives the Rangers, the ballpark lease (with an option to buy), and surrounding property which includes more than 300 acres of land with options to acquire additional acreage near the stadium and assumes other debt owed by the owners. (http://www.austinchronicle.com/issues/vol17/issue19/pols.bush.html.) The value of the deal for Hicks was not so much in the baseball team, the Texas Rangers, as it was in the stadium and the land and development rights that surrounded the stadium.

Relatively shortly before this transaction Hicks made the purchase of the Rangers, he had transacted one other very relevant deal: Remember that in 1997 UTIMCO had approved a deal with Evercore capital partners a $40 million investment deal. Evercore was the financial advisor to NBC and in 1998 NBC and Hicks entered into a $1.7 billion joint venture to purchase LIN Television Corporation.

LIN Television owns the broadcast rights to the Rangers games through the 2000 season. Published reports now say Hicks is going to combine the broadcast rights of his NHL and MLB teams and create his own RSN and Hicks will then lock up the seventh largest market in the US with his two teams as the center pieces for advertisers to sponsor. Hicks can build a growing network of media acquisitions into one of the nation's most valuable regional sports networks with a broadcasting area spanning New Mexico , Texas , Oklahoma , Arkansas and Louisiana . In Hicks’ words, ''The overall value of the regional sports network could far exceed the value of the teams.''  Hicks is also publicly hinting that his teams and the burgeoning network will form a single company that will eventually go public.

Media Holdings which Tom Hicks has an interest in through either Hicks, Muse, Tate & Furst Inc. or through Southwest Sports Group:

• Capstar Broadcasting, middle- and small-market radio stations Percentage held -- 77%
• Chancellor Broadcasting, large-market radio stations Percentage held -- 11%
• Grupo MVS, Mexican television and radio broadcasting, wireless cable Percentage held -- 21%
• Lin Television, large- and middle-market television stations Percentage held -- 67%

Fox Sports however was at the time in the process of building a national chain of RSNs to compete against existing sports broadcasting franchises such as ESPN. What Hicks, through his holding company, Southwest Sports Group, (the precursor to Hicks Sports Group) was able to do was negotiate and acquire a most favorable financial arrangement with Fox for both teams broadcast rights: A fifteen-year, $550 million deal which was at the time one of the larger deals in sports and especially in MLB. The Fox deal tripled the media money the Stars were receiving and doubled the Rangers media money.

Tom Hicks was now riding a tsunami of success financially and sports status/ego wise in his acquisitions of one very successful team and one developing team.

As the owner of the Stars, and the Rangers, Hicks was to see the Stars win the Stanley Cup in1999 and the Rangers win their divisional crown in 1998 and 1999. Hicks’ fortunes were destined to turn downwards. But just like the housing and financial companies crises that preceded the grave economic situation in these present times it would be years before the actual critical crisis point was reached.

As the owner of the Stars, Hicks was instrumental in developing and planning of the Stars home arena America Airlines Center and the land around the center into a parcel to be called Victory Park .

The land he acquired, as the owner of the Rangers, around the Arlington stadium, was to be developed into what was to be called Glorypark.

Both developments were initially to be mixed use developments, that is, a business, entertainment and residential project. But in both circumstances, Victory Park in 2001 and Glory Park in 2008, the projects were to meet with financial difficulties. This was a pattern that would become evident in the projects that were planned around Hicks’ sports acquisitions.

Hicks now in a relatively short time span had acquired the Dallas Stars, the Rangers,  various radio stations and a major regional TV station, that he has parlayed into a multi-million dollar contract for broadcast rights with Fox. With this package in tow he went, in 2001, to lenders such as J. P. Morgan and Bank of America and asked for refinance terms of roughly $190 million in debt that was owed by the Stars and the Rangers. This in itself is significant because it is these two financial institutions that just a little over two years earlier had managed the sale of about $21 million in bonds from Southwest Sports and its business partner, Ross Perot, Jr, to assist in the financing of the construction of the American Airlines Center arena which debuted in Dallas earlier in 2001. American Airlines, which agreed to pay $195 million to sponsor the arena for thirty years, is, at the time, one of the airlines begging for funds for a financial bailout from the US government.

At the time the financing is being requested, sports financing and the strength of the sports portfolios is considered by some financial analysts as reliably strong investments. (At about this time MLB’s Commissioner Selig is before Congress pleading MLB’s case of financial woe.) Greg Clark of Fleet Boston’s sports finance unit says, “All in all, the sports portfolios will hold up pretty well. From a lending perspective, sports has a lot of contractually (obligated income) like TV contracts. I am not losing a lot of sleep (over deals like refinancing Hicks’ debt).”

For whatever reasoning financial institutions lend Tom Hicks money to refinance his loans and by the end of October 2001, Southwest Sports Group finishes the refinancing of $210 million in new loans despite the economic turndown at the time, which was exacerbated further by the horrific events of September 11 of that year. (http://www.fdic.gov/bank/analytical/regional/ro20014q/na/Infocus.html) 

Sources reported at the time say that banks were relatively comfortable with Hicks’ teams’ revenues because of certain in place contractual agreements from various sources such as sponsorships with corporations and revenues from the teams’ luxury suites and concessions sales, which arguably are not subject to the vicissitudes of an uneasy economy.

J.P. Morgan Chase and Bank of America refinanced $135 million that had been divided between two loans Hicks took out to buy the Rangers and Stars into a single debt, which would now be held by Southwest Sports Groups, the holding company of the Stars and Rangers, rather than the debt being held by the teams as individual entities.

The Texas Rangers, in addition, borrowed $75 million from MLB’s credit facility, which was instituted by MLB to lend teams money at very favorable rates. This loan however is held by the Rangers because the credit facility, which is managed by FleetBoston (see reference above), requires it.

It is also leaked that the extra debt will not create more leverage for Southwest because new equity partners have invested in the company. These rumored partners are never identified and it is never stated how much they have invested in Southwest. It is stated that Hicks' 65 percent economic interest (and 80 percent voting interest) in the company remains “relatively unchanged”.

Southwest Sports also owns another firm called Southwest Sports Realty which is a prime mover (50%) of Center Operating Company which built and runs American Airlines Center and this is relevant because Center is the a prime mover of the development of the Victory Park land project around the Stars’ arena and will be a developer of the Glory Park project around the Rangers’ stadium in Arlington.

Submitted 2/8/10

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