Chapter 15
I Ain’t Nothing but a Hound Dog
People who work with me know that one of my mottos is: be a hound dog, not a kennel dog.
I adopted this saying when I was in my early 20s from a legendary chairman of General Motors, Charles Wilson, who ran that company in its postwar heyday. He was in charge of GM during the winter of my freshman year of college, when I was a drill press operator and United Auto Workers member at a rival company, Packard. (This was the latest in my string of random jobs, along with selling women’s shoes and garbage disposals.)
Wilson made his comment about hound dogs and kennel dogs after President Dwight Eisenhower had appointed him secretary of defense. It was not Wilson’s finest moment. He used the line to explain why he opposed assistance to the unemployed—because he said they would, like kennel dogs, always wait for scraps rather than going on the hunt.
A lot of people shook their heads at that heartless application of a good metaphor, including me. But I’ve thought his words clearly applied to entrepreneurs or anyone with some ambition. You can’t wait for opportunities to come to you. Instead, go hunting.
Go After Big Game
I’m unreasonably persistent, so the hard work it takes to be a hound dog comes naturally to me. I never let up until I get what I want—or until the logic of the situation makes it clear my goal really is out of reach. This means I win big and I lose big. There’s no middle ground; a hound never settles for scraps.
In the 1980s I went on one of my biggest hunts. Kaufman and Broad had bought the Sun Life Insurance Company a decade earlier, and I was ready to make some acquisitions to build it up. I set my sights on a company called Baldwin United.
I came across the story of Baldwin in the news, always your best source of information. As I mentioned in Chapter 4, I read four newspapers a day. To this day I get many of my ideas from sources available to anyone who takes the time to read and think through the implications of what’s on the page. If you make a habit of it, you may be fortunate enough to develop a kind of sixth sense for the opportunities embedded in public events—something like the hound dog’s sense of smell.
Baldwin, believe it or not, was a piano seller turned financial services company. That diversification did not go well. Baldwin filed a $9 billion bankruptcy, the biggest ever in those innocent days long before the 2008 collapse of Lehman Brothers. Six insurance companies that had sold annuities—valued at about $4 billion—to Baldwin’s 165,000 policyholders were located in Indiana and Arkansas. The insurance commissioners in those states seized all six companies and then began looking for the right suitor to take them over.
As soon as I expressed an interest in pursuing Baldwin assets, however, people pointed out that our competitor would be Metropolitan Life, an insurance industry titan that, at one time, had insured one out of every five Americans. It was the company that financed construction of the Empire State Building and helped carry the country through World War II by investing its assets in war bonds. If we were hounds, they were winners of the Westminster Kennel Club show—but I’ll back hunger over pedigree every time.
It’s important not to let conventional wisdom set the limit on your ambition. Being unreasonably ambitious will push you to do more and be more than even you may imagine you can be. It’s what made me believe we could compete with Metropolitan for those annuities—no matter what anyone else thought.
Whether or Not You Succeed, You Have to Keep Hunting
I thought we had done all the right things in our attempt to take over Baldwin’s policies—getting organized, lining up allies, putting together a great pitch, negotiating firmly and without emotion. Thanks to my friend Mickey Kantor, whom I met through Alan Cranston, I even got the backing of Arkansas’s ambitious young governor, Bill Clinton. We hired powerful bankers and lawyers based in that state—a prerequisite for doing business there. Most significant, or so I believed, we promised a 2-point-higher interest rate for Baldwin annuity holders than Metropolitan put on the table. Our offer required the insurance commissioners to respond within 10 days. They didn’t meet the deadline, and we didn’t budge. Metropolitan won the first round, but that didn’t mean I was about to give up the chase for the long-term rights to administer those annuities.
Over the next few months, Kaufman and Broad pulled out all the stops. We advertised on billboards and radio stations in the cities where Baldwin’s subsidiaries did business. We wrote to every insurance commissioner in the country and held press conferences touting the benefits of our offer. We came on so strong that Metropolitan, the giant, actually got worried. They launched their own advertising campaign and press offensive. We went at it in the papers—talking up our plans and our companies.
In the end, Metropolitan won, although they couldn’t meet the rates they eventually promised. At first blush, it looked like we had spent a lot of time and money for nothing, a dead loss. But the thing about falling short of an unreasonable ambition is that there’s often an upside.
In this case, our apparently fruitless quest enhanced our company’s image. Before we started vying for Baldwin, few people had ever heard of Sun Life, even though it had been around for a century. All of a sudden, we were all over the press, Sun Life’s David battling toe-to-toe with Met Life’s Goliath. Soon the “little guy” image was discarded and we were being mentioned in the same breath as Met’s competitors. Everyone sat up and took notice.
Unreasonable Persistence Produces Big Payoffs
One of the lessons I took away from the struggle over Baldwin was that big ambition requires big action and all the advocates you can get, especially when business and politics intersect, as they often do. After our Baldwin struggle was over, then Governor Clinton told me that we hadn’t gotten what we wanted in Arkansas because the insurance commissioner was predisposed in Metropolitan’s favor. (Not long after, he joined the law firm that represented Met.) In short order, I realized that the lessons I shared with you in the chapters on negotiation and leverage were just as applicable to politics, though in politics, you often have to be a lot more persistent.
Persistence was the key to breaking ground on The Broad, the future home of our family and foundation art collections. After we announced our intention to build the museum, three years of negotiation and maneuvering followed. Our first choice was downtown Los Angeles, but the developer of the Grand Avenue Project was trying to woo the Motion Picture Academy of Arts and Sciences to build a museum downtown, so we looked elsewhere. We considered sites in Santa Monica and in Beverly Hills, both of which courted us. That gave us valuable leverage when L.A. Mayor Antonio Villaraigosa called and asked us to consider a spot on Grand Avenue across from Disney Hall. In the intervening years, the Grand Avenue Project had stalled because of the poor economy. The developer was willing to abandon its plans to build a condo tower across from Disney Hall in favor of letting us build a museum to jump-start the effort.
I had always thought our museum belonged on Grand Avenue. But building there meant dealing with the city and the county—both of which had jurisdiction over the site—and L.A.’s Community Redevelopment Agency. Maneuvering among multiple government agencies seemed like a lot, but I thought, “Why not?”
The part that required the most persistence was getting the entire Los Angeles County Board of Supervisors to support us. Los Angeles County is America’s largest local government unit, and the five elected supervisors exercise both legislative and executive power. Some of the supervisors were unhappy that the development agreement would allow us to lease the land for $1 a year, a common concession to cultural institutions in L.A. and other cities. This upset the supervisors even though they had already ceded the same to the developer of the overall Grand Avenue Project who, in turn, had agreed that our museum would constitute the cultural component of their development. Somehow, in the supervisors’ view, The Broad was an “elitist” institution grubbing for a public subsidy.
Nothing could have been further from the truth. The whole concept of The Broad was to take a world-class collection of the most important art of our time and make it accessible to as many people from as many walks of life as possible. Not only would our art be on view for anybody who walked through the door, but also The Broad Art Foundation would continue to serve as a lending library for other public art museums around the world. If there was an elitist assumption at work anywhere in that equation, it was the notion that working people are not inspired and enriched by the experience of thought-provoking art. The prospect of having to make that case was almost as tiresome as having our gift horse looked in the mouth. But I don’t quit that easily.
I appraised the supervisors’ incentives and realized that one of them was making a show of hardheaded stewardship for his constituents. I felt I had to bring him along because it was important to have unanimous support for such an important project. That’s why we offered to pay $7.7 million for the site. I also reminded everyone that with the low admission price we planned to charge, the museum’s proximity to public transportation, and the landscape improvements we would bring to Grand Avenue, The Broad would be far from elitist.
The reasonable thing to do in this situation would have been to choose a site in Santa Monica or Beverly Hills, where officials were eager to accommodate us for the sake of our collection’s prestige. That, in fact, would have been the elitist thing to do. From the start, what we wanted was to make great contemporary art available to as many people as possible—and downtown L.A. was the best place to do that. As it turned out, getting the site required unreasonable persistence over several years, but I’m placing a big bet that future generations will be more than happy we stuck to it.
Even the Unreasonably Persistent Must Know When to Quit
Knowing when to quit is tricky, but if you are certain something is not going to work, you have to cut your losses immediately. Trying to avoid an inevitable loss isn’t persistence—it’s desperation. Sometimes you have to accept a loss so you can put all your energies, time, and money into the next project. As in negotiation, it’s important to set a limit on what you’re willing to expend—time, money, and pain—on reaching your goal. If you reach those limits, it’s time to throw in the towel.
That’s just as true when you’re pursuing a good cause instead of profit. I learned this lesson when I tried to bring my favorite sport to my favorite city. Los Angeles hasn’t had a professional football team since the Raiders left town in 1995, and it seemed to me that, for a host of reasons, a great American city ought to have a National Football League franchise. So in 1999 I teamed up with real estate developer Ed Roski Jr. in a bid to bring pro football back to L.A.
We put together a proposal, courted the league, and won the support of key city officials. The NFL was receptive to our $500 million bid, but at the eleventh hour, Houston came in with a $700 million offer, which included $260 million in public money to help build a new stadium. That was out of the question in Los Angeles, where popular opinion was set against any subsidies for pro sports. We had hit our limit and Houston simply was willing to go higher, so we lost. Frankly, I came away suspecting that the NFL had little incentive to award L.A. a franchise under any but the most outrageous conditions. After all, their national television ratings had soared even without a franchise in Los Angeles, and the revenues from their TV contracts are the key to the league’s profitability. L.A. also serves a useful purpose as a bogey to frighten the cities that have teams: “If you don’t build a new stadium, we’re moving to Los Angeles.”
My unsuccessful attempts to maintain local ownership of two other important civic institutions—the Dodgers baseball team and the Los Angeles Times—were equally frustrating, not least because the consequences for the city have been so unhappy.
The Dodgers had passed from the O’Malley family—whose patriarch, the legendary Walter, had moved the team from Brooklyn to Los Angeles in 1958—to Fox Sports, a unit of Rupert Murdoch’s News Corporation, in 1998. The match wasn’t a good one and Murdoch put the team back up for sale. After the company agreed to sell the Dodgers to Boston real estate developer Frank McCourt, who I learned was not a financially sound bidder, I made a late all-cash bid. I thought the team belonged in local hands. But Fox wanted to go ahead with the sale to McCourt. It was rumored that Major League Baseball Commissioner Bud Selig was concerned with the huge amounts Yankees owner George Steinbrenner and the Texas Rangers were paying to players, to the detriment of other teams in the league. Everyone assumed the commissioner would be reluctant to have another billionaire owner with deep pockets to sign the game’s stars. Even though I made the best cash offer, Selig helped engineer the team’s sale—on credit—to McCourt. As his messy divorce proceedings later revealed, McCourt and his wife essentially looted one of baseball’s historic franchises to support the celebrity lifestyle they embraced when they moved to L.A.
The new owners forced the team into bankruptcy and had to sell. Looking back, I can see that the size and soundness of my bid just wasn’t enough. If I had correctly projected the Dodgers’s future potential revenues from television—which I underestimated—I might have sweetened my offer. But that still may not have done the trick.
Sometimes there are forces at play that are impermeable to either persuasion or logic. When you can see that’s the case, get up from the table and move on to the next project.
The Los Angeles Times was, like the Dodgers, a civic icon, a symbol of L.A.’s status as a world-class city and a vital part of its political and cultural life. It, too, had passed out of local hands when the controlling Chandler family sold their Times Mirror Corporation to Chicago-based Tribune Company in 2000. It was an unhappy marriage from the start, and the Chandler interests on Tribune’s board ultimately forced management to put Tribune up for sale too. Although I was only interested in the Los Angeles Times, I had to bid on the entire company, which also included the Chicago Tribune and seven other daily newspapers, 23 television stations, and the Chicago Cubs baseball team. I teamed with supermarket magnate and investor Ron Burkle to make a bid that would have brought ownership of the Los Angeles Times back home. Neither of us reckoned on Tribune’s desire to keep the company headquartered in Chicago or on the creativity of prominent Chicago commercial real estate entrepreneur Sam Zell. He came up with a scheme to take the company private by creating an employee stock ownership program that theoretically made the employees co-owners. Despite the fact he put in a little more than $300 million of his own money, he also convinced a number of major banks to lend him the money to finance the deal.
There’s leverage and there’s folly. The Tribune-Zell deal was the latter because the company was insolvent virtually from the start, unable to service its debt as newspaper and broadcasting revenues from advertising fell across the board. Despite his promises, the only thing Zell could think to do was cut. The new owner essentially gutted the company’s newspapers. Today, the Los Angeles Times is a shadow of its former self, and the damage to Southern California has been palpable.
Now, Tribune also is in bankruptcy—a lengthy and convoluted procedure that probably will be used as a cautionary case study by business schools for years to come. The only saving grace may come when the company emerges from Chapter 11 and the creditors put the Los Angeles Times up for sale, as they likely will do. This time around, the price should be better and the advantages of local ownership clear to all.
Sometimes you walk away so that you can have a second shot down the line to return. That’s something to remember when your loss stings the most. There will be another day and, as long as you stay on the hunt, it will bring its own opportunities.