Date: 5.15.00
NEW YORK - THINGS CAN GO WRONG, BUT AT LEAST THEY'RE NOT shooting at you,' says Harvey Schiller, 60, chief executive of YankeeNets, in a reference to his military career as a pilot in Vietnam. Schiller joins us at a Manhattan steak joint and explains the secret to his getting along with difficult types. Not that he'd describe Ted Turner (Schiller was president of Turner Sports) or Yankee chief George Steinbrenner that way--just that he is a survivor.
YankeeNets is the company formed in September to combine the New York baseball team and the New Jersey Nets of basketballdom. It's in the process of adding hockey's New Jersey Devils to its roster. Schiller isn't involved in the day-to-day operations of any of the teams, but he will oversee all acquisitions, media deals and long-term financial strategy.
In case it's not clear, Schiller is not the underling here. Steinbrenner, the quintessential boss, owns 28% of the company, but he reports to the YankeeNets board, of which Schiller is chairman. Same goes for the Nets' former owners--Ray Chambers, an investor known as Saint Ray for his Newark-centered charities, and Lewis Katz, a former trial attorney who branched off into real estate, parking services and billboard advertising.
One gets the sense that Schiller, physically fit and oozing the right stuff, doesn't have trouble standing up to anyone. "You know, people can always spot a pilot," he says, launching into an anecdote of the time he flew combat missions during Vietnam. Schiller was an Air Force pilot for 24 years, attaining the rank of colonel. We imagine him donning his flight suit when he goes home at night. "Even in pitch black darkness, people could tell who the pilot is," Schiller claims. How? Maybe it has something to do with posture. Schiller sits ramrod straight, has a no-bluster manner and an ego that could show up on a radar screen. His natural self-assurance must help him get along with other dirigible-size egos.
After leaving the military in l986, Schiller, who also has a Ph.D. in chemistry, became commissioner of the Southeastern Conference of collegiate sports, followed by a stint as the secretary general of the U.S. Olympic Committee. In l994 Schiller became president of Turner Sports, which put him in charge of sports programming for TBS and TNT, and the management of the Atlanta Thrashers hockey team. Money aside, Schiller left Turner, he says, because he needed a greater challenge.
He's got one now. Consolidated, the two teams that make up YankeeNets showed a net loss of $95 million on revenue of $241 million in the 12 months ended Sept. 30. The company's operating income--net before depreciation (mostly amortization of player contracts), interest and taxes--was a negative $4.3 million. The company was forced to a sky-high 12.75% interest rate for its bond offering in March and scaled back the money it sought, to $200 million from $250 million, leaving it with a total debt of $327 million--equal to 44% of equity. None of this looks any more appetizing than our locker-room-style lunch.
Eating anyway, Schiller brushes off these numbers as if any problem people might have with the company's financial condition is strictly due to their being Mets fans. "Everyone should relax," he says. According to Schiller, we shouldn't compare the YankeeNets to any other company. The Yankees play in God's neighborhood. Accounting guidelines used by banks, Wall Street and media do not apply. "It's the Yankees," he says in a tone that mimics "because I'm your mother."
He sets aside his plate and napkin and struggles to explain: "I'm in Minneapolis when a driver tells me, 'You pay Derek Jeter too much.' That driver doesn't care about a high interest rate on bonds. He's a Yankees fan." This seems to be enough for Schiller to conclude that the YankeeNets bond offering is fiscally sound. "Despite what anyone writes, it's probably the most assured investment there is. Do you think New York fans would allow their team to be auctioned off?" But overshadowing any negative facts is one giant gorilla fact, and it makes Schiller right. Skeptics fail to consider why the teams were put together: to bundle up content and make a gargantuan media deal that changes all the math. The Yankees' 12-year, $486 million contract with Cablevision-owned Madison Square Garden Network expires at the end of this year, and Schiller points out that the MSG network has grown from 2 million subscribers to 7 million during those 12 years. The Nets have just one more full season on their contract with Cablevision's Fox Sports Network.
The company is heatedly negotiating a 10-year arrangement that will not only pay YankeeNets in excess of $1 billion but also allow YankeeNets to participate, as an owner, in the asset appreciation of a new regional sports network. Under the current contract, the teams bring in some $56 million per year for just their regional games--that's about 150 Yankees games and 80 Nets games. In the new contract, that money jumps to well over $100 million for those games plus the Devils' schedule. Poof! goes the shortfall. This well-endowed bride will be an entity like Cablevision or Time Warner, Schiller hints.
Back to George. Steinbrenner is known as a tireless and overbearing one-man show. How do Schiller and George get along? He answers the question with a story. When Schiller was running the collegiate southeast conference, he held an athletic event in l988 in Gainesville, Fla. that Steinbrenner attended. The two were entering a VIP tent. Steinbrenner, who was recognized, was invited right in. Schiller was told he needed a ticket. Says Schiller, "Here I was the commissioner--it was my show--and I had to go as his guest." The point is Schiller doesn't have to be the star. The colonel can let other people have more stars on their lapels.
Schiller has other incentives: "I was trained as a team member in the military, but to survive you want the pilot to look out for himself." Doing that, he takes care of others. Schiller has an option to buy 3% of the stock for $22.5 million. The way Schiller sees it, the company will be easily worth $3 billion in the next three years, and if that happens, he's looking at a $67.5 million payday.
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