Meet Ron Burkle

Ron Burkle is an interesting name that has been tossed around. Recently, Ailene Voisin mentioned that another possible buyer is out there. Today, it was put out to the media that another possible buyer that is “based” in California.

As I’m writing this, it’s not yet known how long it make take the Maloofs to even sell. Kevin Johnson has been summoned to New York to discuss with David Stern and the Maloofs in New York (George, Gavin and Joe) about the current arena deal that has hit tough times in the last month. What is for certain is that no buyer can buy the team from the Maloofs and control it as long as the Maloofs own 53% of the Kings.

Here is what I’ve found, and it’s an interesting portrayal, of Ron Burkle and a number of his attitudes and opinions.

Background on Burkle

Ron Burkle is not like the Maloofs where much of his fortune is based on previous investment made by someone else (in the Maloofs case their father). Burkle is a self made man as his father was managing a Staters grocery store during much of his childhood. Burkle is from Pomona and spent the majority of his childhood there. Burkle washed out of Cal Tech, and went back to manage Staters grocery stores in his early 20’s. In 1982 he attempted to buy one, was rebuffed, and ultimately was fired as a result of making a low bid. 1 What’s important to know about this is that by this time Burkle was 30 years old and was a Vice-President who made a failed bid that was too low. In 1986 is when the real fun started.

The failed attempt of Staters was only a temporary setback as Burkle ultimately ended up starting his investment vehicle, Yucaipa Inc, and that is exactly what Onexim is to Mikhail Prokhorov (Nets) or what Vulcan is to Paul Allen (TrailBlazers) in case you’re familiar with either of those particular financial vehicles. According to Bloomberg Weekly, there have been 40 deals totalling roughly 30 million dollars since 1986 involving Yucaipa.1

 

Burkle has sold numerous grocery stores, often in economically difficult areas, to larger chains over the years including Kroger and Safeway. In 1998 Dominicks was sold to Safeway for 200 million, and in 1998 Fred Meyers was sold to Krogers for 13.5 billion. Many people who follow Burkle consider that to be his crowning achievement as an investor.2

In 2006, Burkle owned the majority of stock in Whole Oats which was bought by Whole Foods for 535 million. Burkle would also later buy up to about 7 percent of Whole Foods by 2009. This would be sold for a nice profit.

There was a major incident with Burkle as he experienced a very nasty, brutal, and ultimately public divorce with his now ex-wife. There was an agreed upon sum upon which Burkle’s ex would get (30 million), but she ended up suing for a billion dollars. She got her 30 million.2

Burkle’s interest with the divorce became political as his known political contributions, at least 1.86 million since 19923, came to light when a law in California allowed a spouse, at the spouses request, to be sealed. Burkle did this supposedly in the interests of his family.5

Burkle has dealt with a wide variety of people, as you would expect a billionaire who buys and sells things for a living (a rather wealthy and lucrative living), and that includes former President Bill Clinton and current Secretary of State Hillary Rodham Clinton, Italian developer Raffaello Follieri and Sheikh Mohammed bin Rashid Al Maktoum who happens to be the ruler of Dubai. In the case of Al Maktoum he happens to be an investor in Yacuipa. This led to a split of ties between Clinton and Burkle.

Burkle has invested in numerous entertainment ventures beyond the grocery stores in lesser than economically advantaged neighborhoods. They included a speculated 800 million investment in Kavanaugh’s company “Relatively Media.”4 Apparently at one point Burkle also invested in Al Gore’s “Current TV” and Harvey/Bob Weinstein movies. Have I mentioned Ron Burkle invests in things?

There are things that Ron Burkle hasn’t been able to buy. He attempted to buy the Chicago Tribune company and didn’t succeed. He also attempted to buy Barnes and Noble and didn’t exactly come up clean there either. On the other hand, Burkle is slowly but surely managing to grab a steadier share of the Barnes and Noble chain.

One of the most important things here, besides all the ridiculous amount of stuff Burkle has invested in over the years, is that Burkle always tends to target parts of the business world that are either underdeveloped or struggling financially such as bankruptcy. While I am not a financial titan, what’s interesting is how often Burkle has come out ahead using his tactics of not getting into bidding wars or finding places others would not go. Burkle takes risks, yes, but he takes risks that he sees as calculated risks that offer a reasonable return.

According to Forbes, Ron Burkle’s primary residence in London and not Los Angeles. There is a reason for this, but I have not found what it is.

Are we getting warmer? That’s not the most interesting thing about Ron Burkle.

Pittsburgh Penguins ownership

The most interesting thing I’ve found on Burkle is not his riduclous amount of profiting off selling corporate grocery chains to conglomerates. What’s interesting is that Ron Burkle most likely owned the Penguins, after being approached by Mario Lemieux in 1999, and a number of people including some dedicated fans (like Bloguins Pens Blog) didn’t realize this until 20076. That’s a long time to not know who the majority holder is. Which begs the question after so much public heat against the Maloofs so publicly in a very short period of time: Will Burkle mind that the fans may be upset when he buys the team?

Burkle’s investment strategy with the Penguins was sound. He bought into the franchise, which has majority control in Burkle’s hands, when the Penguins were on verge of bankruptcy. That is much much worse than the current Kings situation.

Ron Burkle has been friends with P-Diddy, Michael Jackson, Leonardo DiCaprio, Bill Clinton (as noted), and Mario Lemieux to name a few. He’s often noted for making things work in negotiations that, and in the case of a CEO of a major investment firm like Yucaipa, often get praise from union leaders. Yes, a CEO worth 3.2 billion dollars is noted for working with unions.7

Just as importantly, as noted in a Pittsburgh Press-Gazette article in 2010 (and 2007), Burkle has worked with AEG in the past. This may be the most important part of the article that Kings fans should take note with regards to Burkle:

He rarely grants interviews, so much so that when he agreed to talk to BusinessWeek magazine earlier this year, it became big news. He would not grant an interview for this story. Most team officials would not speak on the record about him. He wouldn’t even take the stage with other dignitaries three years ago to announce the deal between the Penguins and state and local leaders to build the new arena.

More importantly to Kings fans, Burkle is believed to put in money that helped save the Penguins from bankruptcy in 1999. At the time the value of the franchise was considered to be valued around 111 million. Today, or as of Forbes last projection, the Penguins were valued at 264 million dollars.9

According to Forbes, 6 out of the 10 years the Penguins have had postive Operating Income.10  Even though Operating Income doesn’t necessarily indicate a hefty profit (and sometimes does not), it’s also true that the Penguins have gone up in value by 246% through a variety of factors. One is purely luck; in 2005 the Penguins were lucky enough to win the #1 draft pick and the Sidney Crosby sweepstakes. In 2007, Burkle was the lead negotiator for the Penguins in negotiating a new arena for the Penguins to stay in Pittsburgh.

Long live the Pens eh?

1) http://www.businessweek.com/magazine/content/10_11/b4170042334079.htm

2) http://www.forbes.com/free_forbes/2006/1211/104.html

3) http://www.businessweek.com/magazine/content/10_11/b4170042334079_page_2.htm

4) http://www.hollywoodreporter.com/news/ron-burkle-relativity-media-ryan-kavanaugh-284085

5) http://www.observer.com/2006/04/the-complete-ron-burkle/

6) http://thepensblog.blogspot.com/2007/01/ron-burkle-beyond-glory.html

7) http://old.post-gazette.com/pg/07007/751912-61.stm

8) http://old.post-gazette.com/pg/10136/1058553-28.stm

9) http://www.forbes.com/nhl-valuations/

10) http://www.forbes.com/teams/pittsburgh-penguins/

11) http://dealbook.nytimes.com/2009/01/09/ron-burkle-goes-shopping-at-whole-foods/

Summary

What does all this mean? As much as anything it’s anyone’s guess as to what exactly will happen with the Kings moving forward. Awhile ago I happened to stumble across this post detailing the Maloofs shoddy finances and how their financial empire was really built. Other than the Fiesta Hotel, all the other notable and important investments were made by George Maloof Sr who died in 1980. What’s really interesting is not the Sactown Royalty thread that the particular writer put up the Maloof money talking points up at, but in the nearly identical (at the beginning) post that was made at KingsFans.com. In there the same initial post exists, but updates throughout the next year (the initial stuff was late 2009) that would in fact foreshadow the Maloofs demise when it comes to the Palms. In fact, after having read through this is the real reason I started writing this about Burkle.

The Maloofs reported share of the Kings is at 53% right now which means that under no certain circumstances can the Maloofs lose control of the Kings as long as they own that 53% share.

While it’s very clear, and it’s a very clear picture at that, that Ron Burkle can buy the Kings if he so chooses, the question is whether Ron Burkle can gain control without the Maloofs consenting. My speculation is no. 47% is not 53%, and until I know otherwise that’s the only piece of information I have to go on. (I have not seen it reported differently.)

What is Ron Burkle’s end game? Is it sympathy? I doubt it. In fact, I would hope not. A guy like Burkle doesn’t get where he has without being a ruthless bulldog when it comes to hostile takeovers. Could Burkle buy the Kings? Sure. So could I if I could finance the purchase and show that I had the appropriate collateral to qualify for such a hefty loan from a lender.

As far as the Kings on court product goes, they are probably on an upswing despite all the riduclously frustrating and irritating plays that DeMarcus Cousins and Tyreke Evans make on a nightly basis. Even if Keith Smart is not the answer as the head coach, his contract only runs through next season. (That’s a different discussion.) Geoff Petrie, likewise, has a contract that ends in 2013, and I would suspect that much of the basketball management has similar contracts in terms of the years that coincide with Petries.

If there is ever an opportunity to clean house, this might be the time. My question: Would Burkle? Would Burkle want to be hands on and ultimately dictate the direction? Based on Burkle’s recluse reputation when it comes to interviews, and the fact that virtually all of Pittsburgh didn’t even know Burkle owned the Pens for a better part of a decade, this is very much in question right now. While I can always be proven wrong in the future, reading the tea leaves of the past suggest Ron Burkle does not want to be out front and center. Burkle is very much a Worldwide Wes kind of owner; it’s about the power and the power broking. It’s not about necessarily being seen with the right people. (Although, it is certainly that for Wes. Burkle is also friends with a lot of famous and powerful people so it’s hard to deny that doesn’t play a part for Burkle in some fashion.) 

I’ve left the best quote about Ron Burkle for last. It’s his approach to invest in something:

Burkle, though, doesn’t trust his gut. “I don’t pay attention to how I feel about anything,” he says. “What I like or use is irrelevant. I may still wear s—-y khakis and these shirts, but I know I’m not in consumers’ heads. I don’t know what’s going on in America. I know what people in New York and Beverly Hills think about Whole Foods, but I don’t know what people anywhere else think.”

This suggests that Ron Burkle would likely hire people to run the Kings and possibly even a front person. However, in the NBA it’s very common for a GM to be the frontman for the organization in most public aspects. A new GM, or Geoff Petrie (although I’m not necessarily in favor of that), would likely under Ron Burkle as owner become the new front person. In the Post-Gazette pieces, it is suggested that part of the reason Burkle is so hands off with the Penguins due to Mario Lemieux’s long standing relationship with the Pittsburgh community. (Lemieux himself was a #1 overall pick in 1984 for the Penguins and ultimately led the Pens to 2 Stanley Cup Championships in 1991 and 1992.)

I think the biggest factor in why Burkle could be interested in the Kings is rather simple: Right now Sacramento is an underdeveloped property in an urban sense and someone willing to take that major leap can make a rather large killing if the buying terms and circumstances are right. I suspect that buying the Kings would not be just one thing for Burkle to do as an ego trip, but as a way to gain a better understanding of the Sacramento market as a whole. If there is anything Sacramento is ripe for, it’s an Howard Hughes trying to buy up all of Las Vegas in the 60’s like attempt. I don’t think Ron Burkle will necessarily do that because Burkle will typically buy something and then sell it when the best time to profit is available. That has been Burkle’s MO as far as business, and I would suspect that any business holdings in Sacramento would operate under the same fashion.

The question, and it’s the same question that comes back to one thing: Will the Maloofs sell? After the Board of Governors meeting concludes tomorrow, more answers shall became available. However, I don’t actually expect a whole lot of answers to emerge from that meeting between Kevin Johnson, the Maloofs and the NBA/David Stern. What I do expect is a significant backing away from the positions both KJ and George Maloof have taken publicly in recent weeks. Whether that means the Maloofs end up actually agreeing to the term sheet that was agreed to in Orlando, or whether that includes simply taking the media part of the negotiations out of the equation, either way I expect a lot of silence from here on out.

As to why the Maloofs are heading down this tact they’ve done recently, it’s not really a hard thing to figure out. The Maloofs attempted to get a loan, then the Family found it couldn’t receive said loan based on whatever they were using for collateral (not their personal fortune since they won’t put that at risk under any circumstance) that was not good enough to secure the loan for the 73 million amount.

Can Burkle buy the Kings? The question becomes of how much, when, and where the Maloofs want to push the envelope here. The Family always screamed that they wouldn’t sell the Kings for any reason, but the Family maintained that they didn’t sell their profitable and exceptionally lucrative Coors distributorship in New Mexico to help pay some off of the Palms debt. In a sense, this is almost certainly true. Most of the profit from the sale went to shore up the Maloofs shaky personal finances as a result of the Palms losing a lot of value. What was left over went to servicing debt on the Palms. With the Kings credit line with the NBA maxed out (and they aren’t alone), the hint here is that there is little the Maloofs can borrow to cover their 73 million share on a new Railyards arena.

My only question remains who and what: As in, who buys the Kings and for what amount. It will entail a lot of debt, and probably a substantial (50 million minimum) cash influx to the Maloofs for their shares. In my piece at TPBT 2 days ago, I speculated that whoever ends up buying Bob Cooks shares (the minority owner who is in bankruptcy) will likely end up owning the Kings. It’s not an act of craziness on my part: Minority owners have the first right to buy when an owner who wishes to sell.

At any rate, I think the biggest factor on who the Maloofs end up selling could include someone whom is not on Kings fans radar. While that doesn’t make any sense to me in any way, the most logical way to sell a team is to get a buyer who has purchased your product within the parameters of how you set the sale. On the other hand, the Maloofs are not Chris Cohan. While Cohan was always about the money, the Maloofs are so egotistical it leads them to do illogical things (distributorship < debt ridden casino) at times. However given how little trust many have with the Maloofs these days, the one thing that is predictable that they will do everything in their power to wiggle out of any partnership (agreed to or not) with the city of Sacramento and AEG. The other thing that may happen as a result of all the anger and angst recently, is that the Maloofs sell out of spite to someone who is not Ron Burkle.

Which makes Ron Burkle a difficult figure to assess in all of this. Because any prospective owner to obtain ownership of the Kings has to go through the Maloofs, and that may take awhile to accomplish.