Real estate has media man all shook up

Media baron Robert F.X. Sillerman had a great run until he tried to break into real estate - with Elvis Presley as his partner.

The 61-year-old Sillerman made a fortune in radio, buying up stations nationwide and selling them en masse for US$2.1 billion ($3.26 billion) in 1998. He then rolled up concert venues and talent agencies for the likes of Metallica and basketball star Michael Jordan and sold that business for US$4 billion in 2000.

A year later, he co-produced the Broadway adaptation of his friend Mel Brooks' movie The Producers.

Sillerman made what may have been his best deal in 2005, when he bought television's American Idol. Then, in 2007, he rolled the dice on real estate - at exactly the wrong time.

He started a company called FX Real Estate and Entertainment and took over 7ha on the Las Vegas Strip. He borrowed US$475 million through Zurich-based Credit Suisse to pay for the property and start developing a resort with an Elvis theme.

Sillerman owns the commercial rights to Elvis - and Muhammad Ali - through another company, New York-based CKX, which also owns Idol.

The FX investment turned out to be a blunder by a dealmaker who, according to business partners and friends, rarely makes them. "Bob always sees the big picture and knows how to maximise things," Brooks, 82, says.

Sillerman has built and sold five public companies, making money for investors - and himself - each time.

One of those sales prompted a class-action lawsuit in 1998 from an investor who accused him of a conflict of interest when he executed a stock swap between two companies he controlled. He settled the case.

In June 2007, he proposed to take American Idol parent CKX private, offering CKX holders US$1.3 billion in cash, plus shares of New York-based FX Real Estate, again drawing a shareholder suit.

That deal died with Sillerman's real estate dreams. The Vegas project is in default. Plans for a hotel and convention centre at Graceland, Elvis' Tennessee home, are on hold. FX Real Estate fell to mere cents a share in April from a peak of US$7.88 and was delisted from the Nasdaq stock exchange.

A separate real estate venture - construction of a resort on the Caribbean island of Anguilla, also stands unfinished and in default.

"Some people are mad at Bob because he had the golden touch," says William Huff, founder of W.R. Huff Asset Management in New Jersey, the largest investor in FX Real Estate after Sillerman himself. "I think there was a naive perception of infallibility. Bob is not infallible."

Priscilla Presley, Elvis' wife from 1967 to 1973, says the economy, not Sillerman, is to blame.

Sillerman says he got into something he didn't really understand. "I'm not very knowledgeable about real estate," he says at CKX's 16th-floor offices on Madison Ave in New York. "I think I've demonstrated that to the world."

Practical joker Sillerman keeps what's left of his grey hair close cut and sports a moustache. A Lance Armstrong "LiveStrong" cancer wristband - Sillerman survived tongue cancer in 2001 - peeks from under French cuffs and the sleeve of a blue suit coat. He wears no tie.

There are signs that he's stretched. In March 2008, he took out a US$23 million loan from Deutsche Bank on his five-story modernist town house on the Upper East Side of Manhattan, according to property records. CKX is good collateral.

Sillerman is chairman and chief executive of the company, which he formed in 2004 to buy up entertainment properties. It acquired Simon Fuller's 19 Entertainment, the company that owns American Idol, in 2005, for US$161 million plus 1.9 million shares of CKX.

Sillerman profits from American Idol through his stake in CKX. Revenue from Idol advertising, merchandise sales and touring by its performers rose 15 per cent to US$96 million in 2008 and accounted for about a third of CKX's US$288.1 million of total revenue.

As chief executive of CKX, Sillerman got paid US$1.96 million in 2008, including a US$1.15 million bonus, a US$24,000 car allowance and other items. He made US$773,230 in 2007, with no bonus, according to company filings.

Fuller runs the CKX subsidiary that produces Idol. He got a US$1.49 million bonus on top of a US$1.04 million salary in 2008. He also received 200,000 shares of CKX stock. Sillerman got no new shares in 2008.

Until this year's finale, Sillerman had never been to a taping of Idol, Fuller says. "He trusts it's being run smoothly. He doesn't meddle with things that aren't broken."

Sillerman says his business is brands, like Elvis and American Idol. The Vegas real estate project is just a vehicle for Elvis. Similarly, CKX says it will launch a consumer product based on Ali, whose name and image Sillerman bought from the Ali family for US$50 million in 2006.

Paul Kanavos, a partner in the Vegas and Anguilla projects, says that if anyone can recover from the real estate wreck, it's Sillerman. "He's the calmest, coolest businessman I've ever met," Kanavos, 52, says.

Although his net worth has fallen with CKX and FX Real Estate stock, Sillerman still lives large. He and his wife, Laura - a copywriter, author and poet - split their time between the town house in Manhattan and a beachside spread in Southampton, New York.

Until 2006, the Sillermans threw an annual picnic in Southampton known as the Bobecue, featuring bands, booze and hundreds of partiers. Sillerman says they stopped it after he decided the guest list had got out of hand.

Entertainment is in Sillerman's blood. His father, Michael, founded the New York-based Keystone Radio Network and was the man who syndicated Lassie, the black-and-white television show starring a bighearted collie dog.

Sillerman inherited the "X" in his name from his father. Family code dictated that Sillerman not learn what the initial stood for until his 18th birthday and that he not disclose the name to anyone except his future spouse.

Bob and his brother, Michael, grew up in the affluent Riverdale neighbourhood in the Bronx. Sillerman studied political science at Brandeis University in Waltham, Massachusetts. While a student, he launched Youth Market Consultants, which advised companies on selling to teenagers.

Sillerman met Bruce "Cousin Brucie" Morrow, a disc jockey for New York's WABC radio in the 1960s and 1970s, in New York a few years later. The occasion: Morrow and his wife had stripped to their underwear and burst into a friend's apartment to show off their new tans from a trip to Jamaica. They didn't know the Sillermans would be there, Morrow says.

The two became friends and went into business, hiring a small plane to fly them from town to town as they bought radio stations, building empires worth hundreds of millions of dollars. Morrow was astonished at the boldness of Sillerman's dealmaking. "You and I buy a couple loaves of bread," Morrow says. "Bob buys the bakery."

In 1992 he started another radio chain, SFX Broadcasting, which went public a year later.

Not content to roll up just one industry, Sillerman in 1995 started a separate public company called Marquee Group that bought up agencies that represented athletes and musicians. One of its purchases was QBQ Entertainment, a talent agency whose clients included singer and piano player Billy Joel. Marquee was one of two companies Sillerman ran that bought up entertainment properties. The other was SFX Entertainment. On one day alone, May 4, 1998, SFX announced five deals. The day's biggest transaction was the purchase, for US$100 million, of Falk Associates Management Enterprises, a company owned by basketball agent David Falk, who represented the Chicago Bulls' Michael Jordan.

Sillerman's charmed life took a blow in 2001. While shaving one morning he felt a lump in his neck. The diagnosis was cancer in the base of his tongue, a surprise since he'd never smoked. He underwent chemotherapy and radiation treatments.

Around the same time, he helped his friend Mel Brooks out of a bind. Brooks was working on a theatre adaptation of The Producers, a 1968 comedy about a pair of bumbling swindlers, when a backer pulled out.

The show ran for 2502 performances and won a record-breaking 12 Tony Awards.

Sillerman's next big deal unfolded in 2004, when he bought Sports Entertainment Enterprises, a defunct owner of a golf course in Las Vegas. He used it as a vehicle to purchase 85 per cent of Elvis Presley Enterprises, a company controlled by Elvis' daughter, Lisa Marie.

Sillerman paid US$50.1 million in cash, assumed US$25.1 million of debt and gave Lisa Marie a batch of stock. A 90-year lease on Graceland and the rights to its name were part of the deal.

Elvis lived on the 5.5ha Memphis estate from 1957 until his death in 1977. CKX has purchased an additional 12ha around Graceland to build a hotel and convention centre. Those plans are on hold.

Sillerman also agreed to pay Priscilla Presley US$6.5 million for commercial rights to the Presley name and pay her a consulting fee of US$560,000 a year for 10 years.

While assembling the pieces of CKX, Sillerman made his fateful move into real estate. The ultra-swank hotel in Anguilla was his first project. He'd been holidaying there for years and had got to know local officials. Around 2003, they asked him to build a golf course on the island.

Sillerman's Elvis project in Vegas got rolling in mid-2007. That June, Sillerman announced a series of transactions through which he and Fuller would take CKX private, buying out other shareholders with cash and FX stock.

Andrew Baker, then an analyst at Cathay Financial, said at the time that the price was too low. American Idol was red-hot, and the Vegas project was just a plan.

Sillerman and Fuller intended to pay for the shares with a US$700 million loan, according to regulatory filings. Then the credit crisis hit, and banks stopped lending.

By September 2008, Sillerman was in default on the US$475 million Credit Suisse loan because the value of the Strip property had plunged far enough to violate the loan's covenants. Sillerman's lenders seized cash collateral in the company's reserve accounts in January and applied US$21 million of that to the loan.

Construction in Anguilla stopped, too. Sillerman has remained calm, saying his battle with cancer puts his real estate flameout in perspective. "Not everything has worked out in business recently, but I've got no complaints. You only get one chance at this. I've been luckier than anyone I know."

None of his many friends in the entertainment industry will be surprised if Bob Sillerman launches a new public company some time soon - if only to put the failure of the last one behind him.

- BLOOMBERG