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Is Tom Hicks Going Broke?
D Magazine, Jul 01, 2002 by McGraw, Dan
FIVE MINUTES OF CONVERSATION WITH TOM HICKS, AND DALLAS' BEST-KNOWN INVESTOR IS WATRNING ME. Sitting in his office, filled with marble and tasteful bronze art, he is affable and friendly -- certainly not threatening in any way -- but he wants to set me straight. Hicks, 56, is a big man with easy grace, and he's settled comfortably in his chair on the other side of a huge vonference table. He is clearly bemused by my line of questioning. Is the recent poor performance by Hicks' private equity firm -- Hicks, Muse, Tate & Furst -- connected in any way to the poor performance of his sports teams, the Dallas Stars and the Texas Rangers?
"The mistake the media and the analysts all make is trying to connect the dots," Hicks tells me. "The two have nothing to do with one another."
"Except that you're in charge of both of them," I reply.
And so begins my educaion. But while Hicks launches into yhis peroration, which has the sound of something he's had to say before, I can't help but htink that this is a man who has made millions by connecting dots no one else could see-and who is now losing millions. Having cast himself and his firm so much in the public eye by becoming a team owner, he shouldn't be surprised to find himself under scrutiny.
On the face of it, of course, the leveraged buyout business has nothing in common with the sports business. Nobody is suggesting that the Stars' failure to make the playoffs resulted from
the collapse of Hicks Muse's telecom investments. Nor that the Rangers' lastplace finishes in the AL West for the past two years areconnected to the failure of Hicks' Latin American sports channel. The burst of the Internet bubble, the recession, the meltdown of the Argentine economy-there are distinct reasons for Hicks Muse's problems in different investment areas. As for the sports teams, perhaps it is inevitable that winners eventually become losers. Except for the New York Yankees, dynasties just don't happen anymore.
Then again, there are all of those dots. In the past 18 months, the general managers and coaches of the Stars and the Rangers have been dismissed. Jim Lites, the man supposedly running both teams, was forced out. Hicks Muse partner Charles Tate retired in June. Partners Mike Levitt and Cesar Baez, who were in charge, respectively, of telecom and Latin America, left the firm earlier.
Another huge dot popped up when Hicks publicly threatened in March to pull out of the Victory project if the Palladium proposal to use $43 million in tax increment district funds was not approved (the deal would win approval in May). Because his only role in the project would have been to sell his partnership portion to Palladium, some observers saw the threat-planted in the Morning Newsas little more than a head-fake aimed at the City Council, which Hicks himself later acknowledged in the New York Times. The episode made Hicks look more like a petulant child than the astute and seasoned investor he is. That impression was magnified when he called up KTCK-AM 1310 (The Ticket) to complain on the air about the station's take on the Victory project, rambling on about tax increment financing. At that point, something began to sound less like petulance and more like desperation.
In Hicks' office, I keep trying to connect the dots, and he keeps setting me straight. The performances of the Stars and Rangers have nothing to do with front-office turnover, Hicks says. The failure to develop property around The Ballpark in Arlington and the controversy over Victory spring from the bad real estate market and nothing else. The botched investments by Hicks Muse are the result of bad timing. The turnover of key personnel at Hicks Muse and the sports teams is unrelated to any turmoil in those businesses.
But eventually the dots line up so neatly that you don't even need to connect them to see where they're headed. The line Hicks doesn't want drawn leads right across the conference table. And he seems to be struggling to avoid the central question before him: is Tom Hicks' world crumbling around him? Or, put another way: just how many millions can a millionaire afford to lose?
Missing the Bar
Before we get to Hicks' sports interests, let's have a took at his cash-generating machine, Hicks Muse. The fact is that the machine isn't running well. Its problems predate the Internet meltdown and the 9/11 market crash, but those certainly didn't help. The ship is righted now, Hicks says. What he won't acknowledge is that he still has a lot of wreckage to deal with.
Hicks made his name in the leveraged buyout business in the mid-1980s, when he and partner Bobby Haas bought Dr Pepper and Seven-Up in two separate deals totaling $646 million (the combined companies were later sold for $2.53 billion). He went on to form Hicks Muse, where he followed a buy-and-build strategy that wasn't universally embraced at the time. When LBO firms first came into vogue in the 1970s and '80s, many made their money by breaking up companies and selling the parts. Hicks instead bought companies that were undervalued-first in the food and manufacturing sectors, later in media as well-and built value through investment and sound management.
