The fight is over whose committee–Kennedy’s Labor and Human Resources or Moynihan’s Finance–has primary jurisdiction over the president’s health-care reform legislation. Routinely, a bill with major revenue impact would be referred to Finance. But White House insistence that employer-mandate health-care premiums are not taxes has given Kennedy an opening to claim jurisdiction for Labor and put Moynihan in the awkward position of declaring that the premiums are taxes by another name.
Kennedy’s committee is stacked with Democratic liberals and Republican moderates like Nancy Kassebaum of Kansas and James Jeffords of Vermont. It would likely vote out a health package close to the Clinton proposal. Finance is more conservative. But if Moynihan prevails, the White House could be better off in the long run. “The deals that get worked out in there would have a chance of picking up steam on the floor,” says the aide.
What looks like a raw power struggle can be resolved only by the two men when Congress returns in January. Though their staffs are feuding, Kennedy and Moynihan have been friends for years. They are expected to carve up the bill so each gets a piece of the action. “It won’t be the week we get back, but it’ll happen,” the aide says.
title: “A Piece Of The Action” ShowToc: true date: “2022-12-16” author: “Sondra Tiller”
Why yet another story about Rockefeller Center, the most overcovered business topic in the United States since Windows 95? Because the story, as I piece it together from documents, interviews and off-the-record discussions, shows how the world really works. How cross-cultural misunderstandings, combined with the normal greed and arrogance, helped put Rock Center in the toilet.
You probably know that the Center’s controlling owner, a giant Japanese land company called Mitsubishi Estate, agreed last week to turn the Center over to Rockefeller Center Properties, the publicly traded real-estate investment trust that holds a $1.3 billion mortgage on it. You may also know that Chicago vulture capitalist Sam Zell, a.k.a. the Gravedancer because he specializes in dead and dying properties, is duking it out with oh-so-respectable Goldman, Sachs & Co. for control of Properties. Properties will own Rock Center, currently in bankruptcy, by the year-end.
What you probably don’t know is that as recently as Sept. 9, Goldman was part of Zell’s deal, which includes Merrill Lynch, Disney and General Electric. The deal broke down over technicalities so complex they make my teeth hurt. What’s more, as recently as Sept. 10, Mitsubishi Estate was negotiating with GE to jointly take the Center out of bankruptcy. Hmmm. GE was on both sides, with neither side knowing that GE was talking to the other. Isn’t hardball fun?
To understand how a fine, profitable property like Rock Center can end up in the discard bin, step back to 1985, when the Rockefellers decided to cash in some chips. Goldman helped raise $1.3 billion for Properties, which used it to make the mortgage loan. The Rockefellers took out some $330 million for themselves, with the rest set aside for debt repayment and repair. And, of course, $65 million for Wall Street fees.
The Center was borrowing more than it could afford to pay, to give the Rockefellers the biggest possible payday. Properties was overborrowing, too. The idea was that rents and property values would rise and everything would work out. Oops! New York real estate headed down instead of up. Rockefeller Center is still profitable; it just has too much debt.
Flash-forward to the present, where a financial food fight of epic proportions is raging. Everybody wants a piece of the Rock–at a discount. Zell and Daniel Neidich, who runs Goldman’s real-estate operation, have butted heads for years, and don’t much like each other. This notwithstanding, they managed to make an agreement, which broke down during a Sept. 9 conference call designed to dot i’s and cross t’s. Instead, Zell, Neidich and Properties couldn’t agree on what they’d agreed to. “This is the most complex transaction I’ve ever been involved in,” said Zell, a veteran of dozens of convoluted deals. Recriminations reigned.
Meanwhile, the Rockefellers and Mitsubishi don’t much like each other, either. They loved each other in 1989, when Mitsubishi agreed to pay a staggering $1.37 billion for an 80 percent stake in the Rocketeller company that owns Rock Center and various other things. Now they loathe each other. The Rockefellers have hired a press agent to announce they disagree with Mitsubishi’s decision to put Rock Center into bankruptcy and walk away from the mortgage. Mitsubishi says the Rockefellers are greed-heads willing to do anything to protect their name as long as it doesn’t cost them very much. Both parties may be right.
The breach became permanent last spring, when Mitsubishi and the Rockefellers failed to put together a joint offer to buy Properties, the center’s mortgage holder. To give you the brief version, the deal would have given them ownership of the $1.3 billion mortgage for about $950 million. Mitsubishi insisted that the Rockefellers walk an extra mile by making an interest-free $38 million loan to support the buyout. That’s what a Japanese player would do in similar circumstances if it had won as big as the Rockefellers did by selling to Mitsubishi, which has lost more than $1 billion on the deal. The economic gap? A paltry $10 million. The cultural gap? Immense. The Rockefellers, used to U.S. bargaining, insisted on interest. Sayonara, joint venture. Hello, bankruptcy court.
Now, watch this brush-back pitch. Handing Rock Center over to Properties will create a nine-digit tax bill because it cancels a $1.3 billion debt. The Rockefellers have let it be known they may try to escape by invoking a “besmirchment clause” that forces Mitsubishi to buy the remaining 20 percent if Mitsubishi has damaged the Rockefeller name. That would put a nice hunk of change in the family’s pockets–it’s not clear how much-and stick Mitsubishi with the whole tax bill. The Rockefellers feel besmirched by the bankruptcy of their namesake property. Mitsubishi says the clause applies only if it does something like putting porno flicks in Radio City Music Hall. We may yet find out.
Then there’s Goldman, Sachs, which wants to be considered a silk-stocking firm but is as hardball as they come. Last December Goldman took advantage of the fact that Properties was desperate for money because its Japanese bank lenders refused to renew their loans as Properties’ relationship with Mitsubishi deteriorated. Funny how that works. Goldman lent $225 million on terms that would make a loan shark blush. Goldman got interest rates of up to 14 percent, a seat on the board and the right to buy 19.9 percent of Properties’ stock at $5 a share. To escape Goldman, Properties’ advisers at PaineWebber made the deal with Zell. Invoking what they say is a loophole in Goldman’s contract, Properties signed up with Zell in mid-August to sell a 50 percent stake for $250 million, or $5.59 a share. The deal would force Goldman to have its high-interest loans redeemed, and reduce its ownership stake to 10 percent, Goldman said it would block the deal; Properties told Goldman to shove it. Which is where everyone stands now.
On Sept. 1, Goldman played a little chin music on Properties by exercising its right to grab $33 million of Properties’ badly needed cash, applying the money to the cheaper of Goldman’s two loans to Properties. In your face!
Zell isn’t exactly a public charity, either. He has extracted $2 million of fees for advancing $33 million to Properties, and will get $9 million more if his deal with Properties craters. Zell is one of the most irreverent big-time financial players in the country. He runs annual motorcycle tours called Zell’s Angels, and he congratulated himself on surviving the 1990s real-estate collapse by hosting a massive “Staying Alive in 95” bash in downtown Chicago for guests ranging from his billionaire backers to his cook. This time around, Zell is clad in respectability, with GE (about 25 percent) and Disney (about 10 percent) among his backers. GE’s NBC is the Center’s major tenant, and Disney wants to have shows and stores at Radio City Music Hall.
Goldman is the declasse player here. It has serious conflicts, including the fact that its proposal to raise $100 million of new cash for Properties by selling stock at $6.50 a share leaves Goldman’s high-rate loans to Properties in place. That’s good for Goldman, but bad for stockholders. Those of us with long memories remember that Goldman underwrote Properties’ $20-a-share stock offering 10 years ago, saying the price was fair to investors. Now Goldman wants to buy control at $6.50. Goldman’s response: that was then, and this is now. Besides, Properties sought out Goldman for last year’s loan, and had plenty of advisers to decide if its terms were proper.
Properties may yet decide to let its stockholders buy new shares without Zell or Goldman. But that’s easier said than done. Meanwhile, the deal rocks on. The Rockefeller family is sniffing around, and may end up as a small player in the final deal. Mitsubishi doesn’t want that to happen because it hates the family’s guts. By the time you read this, Properties, Zell and Goldman may all be buddy-buddy again. Or some other player may have stepped up to bat. Remember this is a blood sport, not recreation. When sportswriter Grantland Rice penned the immortal line “[It’s] not that you won or lost–but how you played the game,” he sure wasn’t talking about Rock Center.
title: “A Piece Of The Action” ShowToc: true date: “2023-01-09” author: “Barry Mangini”
Andre Harrell, one of black music’s moguls, is a “big Willy,” hip-hop lingo for a big-time player in showbiz. At 35, he’s the new CEO of legendary Motown Records. In his 20s, he founded Uptown Records, launch pad for hit acts Mary J. Blige and Jodeci. Success has whetted his taste for the good life, too. Harrell summers in the Hamptons with his pals supermodel Veroniea Webb and rap-music impresario Russell Simmons, and the rest of the wealthy media elite.
But Harrell’s power hardly runs as deep as appearances might suggest. In a clash this year – ostensibly over staffing – Harrell lost Uptown to partner MCA, which bankrolled the music venture. According to MCA insiders and industry executives, Harrell repeatedly hit up MCA for advances against Uptown profits that he never delivered and, ultimately, mismanaged the promising venture by overspending. What Harrell remembers is that MCA collected big fees from Uptown and doled out gold-plated deals to white executives. MCA also dominated black music for a while with Harrell’s help. But when Harrell asked to break his Uptown deal to go to Motown in October, MCA gladly agreed and kept all that matters in the entertainment business – the artists, the master tapes and even the Uptown name. Says Harrell: “I had fake control.”
For some African-Americans in the entertainment industry, Harrell’s experience crystallizes the plight of blacks in the business. Despite a growing impact on the creative side of showbiz, few African-Americans have managed to gain, or hold on to, much of a stake in the valuable assets they help produce – the master tapes, recording fights, film negatives, trademarks, music, TV shows and images. With few exceptions (such as Disney TV chief Dennis Hightower and Richard Parsons, Time Warner’s president), African-Americans haven’t cracked the ranks of studio heads, network programmers and other powerful execs who run showbiz day to day – jobs that often lead to ownership positions.
But that may be about to change. These days a cadre of the young black producers in the music business are striking out on an entrepreneurial course, following a trail blazed a decade ago by Russell Simmons, who turned rap into a thriving business with his Def Jam label. With the aid of black legal and financial advisers, the new generation is seeking deals with industry heavyweights like Bertelsmann Music Group (BMG) that provide financing and owner, ship of master tapes and other assets. The deals with the greatest ownership potential are the joint deals in which the major distributor and black entrepreneur co-own the music venture. Says Londell McMillan, a black entertainment lawyer: “Ownership is the next frontier.”
The outcome of the ownership drive is far from certain. First, few people, black or white, own films and TV shows, both hugely expensive areas dominated by mammoth public companies. In music, major companies are reluctant to give up assets like master tapes after financing joint ventures. Many of the new entrepreneurs are artists who are still in the process of molding themselves into savvy executives. “They’ve got to learn to count well,” says Clarence Avant, Motown’s influential chairman and mentor to several of the major newcomers. Some industry lawyers argue that joint ventures place entrepreneurs at a disadvantage to their partners – the big companies controlling the purse strings.
Most disturbing – in some quarters of the rap community in particular – a growing culture of violence could destroy the opportunities that young blacks are seeking to create and exploit. Music-industry sources and pubhshed reports indicate that a feud has erupted between two camps, New York-based Bad Boy Entertainment and Los Angeles-based Death Row, the controversial label controlled by star rap producer Dr. Dre (page 54) and Suge Knight. Indeed, the worry has risen to such a degree that Louis Farrakhan, the Nation of Islam leader, has sought to help lower the temperature, according to music executives.
African-Americans’ efforts to get a piece of the action in showbiz dates to the early years of the century. From the teens to the late 1940s, some 50 independent black-owned film companies cropped up nationwide to churn out so-called race movies – like “Daughter of the Congo” in 1930 – as mass entertainment for black audiences, says black film historian Donald Bogel. But without sufficient financing, distribution and promotion the movement faltered. Meanwhile, blacks gave birth to much of modern American music – from jazz to blues to rock and roll to today’s rap and hip-hop. Still, “we’ve yet to create a lasting record company,” says Larkin Arnold, a black entertainment lawyer.
Beginning in the early 1970s, corporate giants moved in on black music in a big way, according to black music writer Nelson George in “Where Did Our Love Go?” a book on Motown. CBS (now Sony Music) even commissioned the Harvard Business School to prepare a blueprint for dominating black music called “A Study of the Soul Music Business,” George wrote. The major strategy: link up with black labels, which would deliver music for the majors to distribute. Two major black music companies, Stax and Philadelphia International, signed with CBS for distribution. Stax subsequently collapsed in a costly legal battle with CBS. Similar deals exist today, and continue to pose the same dilemmas for small record producers.
Only Berry Gerdy Jr.’s Motown endures, but without black ownership. The pioneering Gordy, one of the industry’s most successful executives, sold out in 1988 for $60 million to a partnership that included MCA. Five years later, after Motown sued distributor MCA over its handling of Motown releases, Polygram bought the famed black music company for $300 million. Gordy had sold before the big run-up in the value of music companies.
That’s not to say African-American artists and entertainment executives aren’t well compensated for their work. (In fact, industry insiders say Harrell may have received as much as a $10 million bonus to join Motown.) But so is every hit maker. In media and entertainment, where the value of assets has soared for at least a decade, ownership of copyrights or entertainment “software” is the coin of the realm. These are the assets expected to launch vast enterprises that feed entertainment, data and other reusable software across everything from the Internet to cable TV. More important, such assets can hold their value forever. What’s galling to some African-Americans is that they’ve played central roles in the creation of such offerings – from some of the biggest-selling records by some of the newest stars, to movies that yield the biggest returns on Hollywood’s investment, to TV shows critical to the success of start-up TV networks like Fox. “One of the strongest early audience groups was black,” says Barry Diller, the former Fox chief credited with the network’s initial success. Adds producer Scan (Puffy) Combs, CEO of Bad Boy Entertainment: “We create the pie and get to keep the crust.”
In music, Puffy’s pie helps feed an industry dominated by six major firms. Time Warner, Sony, Polygram, MCA, BMG and Capitol/EMI control 80 percent of the U.S. recorded-music market. In 1994, black music – R&B, soul, hip-hop, jazz and gospel – accounted for about 25 percent, or roughly $8 billion, of U.S. music sales. And that, notes Stephen Barnes, a top black entertainment lawyer, doesn’t reflect some of the biggest-selling black artists, such as Motown’s Boyz II Men and Virgin Records’ Janet Jackson, who are categorized as pop stars. The record companies don’t break out results for black music. But in the business year that ended June 30, sales at BMG’s Arista shot to a record $300 million, fueled in part by black hits. For example, the girl group TLC’s album “Crazy-SexyCool” has now sold some 7 million copies, ranking the trio as the biggest-selling female group ever. In another first, three of the Arista-distributed acts – rap star Notorious B.I.G., TLC and new sensation Monica – held down the top three spots on the Billboard singles chart this summer.
Guess what? All three acts record for labels owned by three of music’s hottest producer-entrepreneurs: Combs’s Bad Boy (Notorious B.I.G.); Dallas Austin’s Rowdy Records (Monica), and LaFace Records (TLC), from the team of Antonio (L.A.) Reid and Kenneth (Babyface) Edmonds. Since 1989 LaFace, which also launched pop diva Toni Braxton, has sold $200 million worth of records. “The issues of significant dollars and ownership have become deal points because now black entrepreneurs have economic power” as a result of record sales, says Ronald Sweeney, a black entertainment lawyer who recently joined Sony Music as one of its top executives.
That power is producing some major new contracts. With soaring sales by TLC and Toni Braxton, the LaFace entrepreneurs re-negotiated their label with Arista earlier this year. The result: an estimated $100 million, five-year deal that grants them half ownership of the masters. Bad Boy’s Combs is also negotiating an ownership deal with Arista. Under his existing deal, which lapses soon, he gets only a rich royalty payment on the record sales of acts, not control of assets. But Combs and his advisers are pushing for a joint venture with Arista that will allow him upfront to retain full ownership of his company. In return for financing, Combs would split profits with the distributor and pay a distribution fee. “I’m not going to sign the usual deal anymore,” Combs vows. According to music-industry sources, Arista has offered a $75 million line of credit and a signing bonus of $10 million. But these sources say Arista has balked at giving Combs ownership of his assets upfront. Instead, it prefers to share ownership until the deal lapses and then decide which partner buys out the other. Clive Davis, Arista’s chief, declined to comment on the talks.
There’s also some progress outside the music industry.Robert Johnson, the veteran showbiz executive who controls Black Entertainment Television, is trying to launch the first black-owned movie studio, in part by trying to enlist top black actors and directors to swap their talent for a big equity stake. And in a joint venture with Sony, former basketball star Magic Johnson is building a chain of cineplexes in or near inner cities. His first project, a 12-screen theater in Los Angeles’s Baldwin Hills community, opened last summer.
What could stall this movement? For one thing, the entertainment firms – as in the case of Combs and Arista – aren’t going to easily give up assets. A distributor who puts up all the financing upfront for less than full ownership typically “will have preferential fights to buy out the partner” at the end of the deal, says Strauss Zelnick, North American president of BMG Entertainment, speaking generally. At MCA, Harrell would have been bought out had he not broken his contract. “We aren’t in the business of putting up all the funding and then losing our asset at the end,” said Al Teller, who was recently ousted as MCA Music chairman. Even the joint ventures are fraught with problems. Often the entertainment companies keep a tight rein on the money they dole out to their venture partners, which can hamper marketing or promotional efforts the entrepreneur mightwant to pursue. The distributor also has multiple ways of profiting from a joint venture. Off the top of every dollar in sales, the distributor takes a fee of 15 to 20 cents for manufacturing and distributing the venture’s records. If there are any profits, those are also split. But in the hit-or-miss business, losses can mount fast. Management skills are at a premium, and black entrepreneurs often have to learn on the job. Because the final buyouts of entrepreneurs – and their assets – are based in part on profits, they can end up with little or nothing if they hit a cold streak.
But there are other worries at a time when new contracts are being negotiated with the major record films. Some industry executives say that some of the young hit makers could blow their opportunities by getting caught up in the violence associated with the toughest rap music – such as the reported feud between Combs’s Bad Boy Entertainment and Death Row Records. Sources point out that part of the problem stems from the fatal shooting of a Death Row staffer in September at an industry party. No arrests have’ been made in the shooting. In addition, the murder of a New York-based rapper two weeks ago sent shudders through the music community. New York investigators had been looking into links between the ambush slaying of a rapper known as Stretch and the shooting last year of gangsta rapper Tupac Shakur, now a Death Row artist. According to press reports, Stretch, who had recently set up a label deal, was with Tupac when the rap star was himself gunned down and robbed of his jewelry in the lobby of a New York recording studio. Stretch’s murder occurred one year and five minutes from the night of the attack on Tupac.
Both Combs and a spokesman for Death Row have denied any feud. But New York’s Daily News reported that the tension explains Combs’s beefed-up security. The tabloid reported that Combs has hired ex-drug gang enforcers as bodyguards. (Combs told the newspaper that they were off-duty cops hired to secure a big birthday bash.) And last week an incident involving Combs and his security landed the entrepreneur in jail for a night. After emerging from a recording studio, they discovered a photographer snapping Combs’s ear and allegedly forced him to hand over the film. Several senior record executives also say Minister Farrakhan, whose son is said to be a friend of Combs’s, has tried to mediate a rapprochement between the East Coast and West Coast moguls. The minister couldn’t be reached for comment.
Rivalries and stingy record companies aside, many white industry executives say black entrepreneurs are bound to make gains, especially in the music business. With profits flowing, there’s more for everyone to share. “It’s a wide-open business, colorblind,” says entertainment mogul David Geffen. “The music business doesn’t care about who’s delivering hits.” That optimism is encouraging, say black executives. But they also add that Hollywood – from the film to the record businesses – has to do much more to make sure that black producers get a share of the assets they help create. “If they don’t expand the opportunities for ownership more, there’s going to be a revolution in the industry,” says Vernon Brown, business manager to Combs and top industry talent and executives. Brown says that the major producers and acts may be less willing to sign new deals with the big record companies – or may even seek to get together to form their own distribution company. Maybe then Puffy Combs will get the pie he baked and will leave the crust for someone else. .
