These should be anxious times for Philip F. Anschutz. The Securities & Exchange Commission is investigating the accounting practices of Qwest Communications International Inc. (Q ), the telecommunications company he founded in 1987. As Qwest chairman, Anschutz is still its largest shareholder, with an 18% stake, while day-to-day operations are run by former AT&T executive Joseph P. Nacchio.
But if Anschutz is feeling beleaguered, it's not showing. In Los Angeles for the weekend of the Academy Awards, the 62-year-old Denver billionaire took in a Lakers basketball game at the Staples Center on Friday and a Kings hockey game the next afternoon. That evening, he zipped out to the Rose Bowl to catch the opening game of the Galaxy pro soccer team.
Anschutz was simply checking out his new domain. Since he began cashing in $2.5 billion of his Qwest stake in 1997, Anschutz has been busily building a far-flung venture in sports, concerts, and movie chains (table). Today, along with his partners, Anschutz owns the nation's largest movie theater chain; 16 sports teams, including the Kings and a 30% stake in the Lakers; and a company that last year staged concert tours for Britney Spears, Mariah Carey, and others. As for the Academy Awards ceremonies, his Anschutz Entertainment Group Inc. also books the new Kodak Center, where Halle and Denzel clutched their Oscars. So far, Anschutz and his partners have invested nearly $2 billion, betting big that even in the era of the couch potato, folks will still go out to catch movies, sports events, and concerts. "People get tired of sitting in their houses looking at one another," says Timothy J. Leiweke, president of privately held Anschutz Entertainment.
Famously press-shy, Anschutz isn't talking. But his move into the world of out-of-home entertainment bears a striking similarity to his early days at Qwest. Back then, he used the all-but-forgotten rights-of-way alongside the tracks of a railroad he owned to lay fiber-optic wires. Today, Anschutz is rummaging through entertainment's dustbins. He bought the Kings out of bankruptcy and paid cents on the dollar for the debt of the United Artists, Regal, and Edwards theater chains as they emerged from bankruptcy. Now he's taking the chains public in a $345 million initial public offering due to hit the markets in May.
For Anschutz, who made his billions not only in railroads and telecom but also in oil and real estate, the concept of an out-of-home empire is as simple as putting up a shopping mall: First you build or buy the real estate, then you secure anchor tenants. The model is the $407 million Staples Center he built in 1999. Today, Anschutz fills Staples an impressive 250 days a year with events, including Kings and Lakers games. He is currently building a $120 million stadium in Carson, Calif., for one of his pro soccer teams, as well as arenas in London and Berlin for two of his six European pro hockey teams.
Of course, none of this is a Shaquille O'Neal slam-dunk. The $26 billion a year live entertainment market grows annually only "in the mid-single digits," says entertainment economist Arthur Gruen, citing growing public resistance to climbing ticket prices. And the costs for athletes and rock stars keep soaring, crimping margins. A lot has to go Anschutz' way for him to succeed. The $100 million he has already put into soccer is a bet that the sport will finally take off in the U.S. after a decade of false starts. Hockey in Europe is also uncharted territory. "They're disparate assets that don't really add up to a sports business--and may never," says sports marketing consultant David M. Carter of Los Angeles-based Sports Business Group.
What's more, the spending spree might still take a toll on Anschutz, whose remaining stake in Qwest lost $12 billion in the past two years as telecom stocks plummeted even before Qwest ran into trouble with regulators. Leiweke declined to provide numbers for how well the entertainment company is doing. But Anschutz' Regal Entertainment Group Inc. unit showed $58.3 million in earnings last year on revenues that increased only 1.9%, to $2 billion--helped in part by the sizable reduction in the debt the chains took on during a construction binge. Now, Anschutz executives are planning to cross-promote through the collection of assets. With 5,872 movie screens, for example, Anschutz last year used theaters to market the Britney Spears' tour with promos on popcorn bags. And the theaters plan to show pay-per-view concerts and sporting events from Anschutz teams during midweek when traffic is slow.
The Anschutz entertainment initiative, of course, could all end in a hurry if the Qwest investigation takes an ugly turn. Shareholder lawsuits are piling up. The company says it is cooperating with SEC investigators and that its accounting is proper. But meanwhile, Anschutz hasn't lost his healthy appetite for making deals. Anschutz Entertainment plans to build a $1 billion hotel and entertainment complex in Los Angeles and is part of a group looking to build a football stadium in yet another attempt to lure a National Football League team to the City of Angels. A deal to buy the House of Blues nightclub chain may also be in the works, giving Anschutz 17 much-needed concert venues to do battle with concert giant Clear Channel Communications. On top of all that, the Kings and Lakers are headed to the playoffs. Life is good for Phil Anschutz. Except for that messy business back at Qwest.
By Ronald Grover in Los Angeles