When a Wall Street mogul reaches a certain age and net worth, imperatives besides making a lot more money start coming into play. That’s what appears to have been driving blustery, iconoclastic private-equity mogul Leon Black (net worth: $6.4 billion) in the last few years.
There’s art, of course. In 2012, Black paid nearly $120 million for one painting, albeit Edvard Munch’s rather famous The Scream. At the time, it was the most expensive piece of art ever sold at auction. Last May, New York’s Museum of Modern Art elected Black its sole chairman of the board of trustees. And in November, Black and his wife, Debra, gave $40 million to MoMA as part of the museum’s ongoing renovation and expansion project. As a result, there will now be a new Debra and Leon Black Family Film Center at MoMA. Estimates are that Black has spent nearly $1 billion on his art collection, rivaling that of Steven Cohen, the billionaire hedge-fund manager who also can think of other things besides making a lot more money.
Perhaps most important, there’s power. Black isn’t planning a Trump-like assault on the White House. He and his firm, Apollo Global Management—with about $280 billion of assets under management—are subtler than that. But Black, who leveraged his mentor Michael Milken’s downfall to build a private-equity fortune, is equally ambitious. In the past year or so, on behalf of their investors, Black and one of his senior partners, David Sambur, have quietly assembled 29 local television stations, stretching from Spokane to Boston. And they have a hankering for more.
For Black, as for many other Wall Street moguls, TV represents more than just a pure-play economic opportunity. Apollo has figured out that local television is a relatively stable business that can put lots of the firm’s capital to work—on which it receives a 2 percent fee. It is a consolidating industry, which makes it an obvious target for private equity. But Apollo must also know that controlling local television stations brings with it a healthy dollop of power, especially when it comes to statewide political races, such as those for governor or the U.S. Senate. Having a measure of influence over the governor’s house and the U.S. Congress is good for all of Apollo’s businesses across a variety of industries, from chemicals and food to education, natural resources, and media. Black himself has been very active politically over the years, contributing roughly $600,000 in around 368 donations to political candidates—mostly incumbent U.S. senators—on both sides of the aisle, according to opensecrets.org.
That’s where the local television-station empire comes in, at least according to one theory of the case. After agreeing to buy Northwest Broadcasting, Inc. and its 15 local television stations from its founder, Brian Brady, for around $384 million (a multiple of about 9.5x cash flow), Apollo agreed to scoop up a majority stake in Cox Media Group’s portfolio of 14 local television stations for $3.1 billion, at a multiple of around 11x cash flow. (As part of the Cox deal, Apollo got Cox’s seasoned management team as well as three newspapers and three radio stations in Ohio.) The two deals are part of Apollo’s strategy to become one of the largest owners of local television stations nationwide, in a bid to perhaps rival Sinclair Broadcast Group and Fox Television, which itself was created in 1996 after billionaire Ron Perelman scooped up a group of local television stations and sold most of them to Rupert Murdoch.
Leon Black’s shopping spree has not been without setbacks. Apollo was one of the unsuccessful bidders to buy Tribune Media’s group of 42 local television stations, including superstations WGN, in Chicago, and WPIX, in New York City, after the F.C.C. blocked Sinclair from buying Tribune. Apollo lost out on that deal to Nexstar, the nation’s largest owner of local television stations, which agreed to pay $4.1 billion for the Tribune television stations. (Apollo reportedly had also tried to buy Nexstar after Sinclair announced its deal for Tribune, but then Nexstar decided to become a buyer once Tribune became available again.) As part of Nexstar’s deal to buy Tribune, Nexstar was forced to sell 19 stations, in order to comply with F.C.C. rules about TV stations owned by one entity.
Media reports suggested the deal for the Nexstar divestitures was Apollo’s to lose. And Apollo lost it. A few weeks ago, Nexstar agreed to sell the stations in two separate deals: 11 stations, for $740 million, to Tegna, the local television spin-off of Gannett; and another eight stations, including WPIX, to the E.W. Scripps Co. for $580 million. (Nexstar is still negotiating to sell two stations.) Apollo was outbid.
It was a “big blow” to Apollo, one Wall Street veteran told me. “Word is they were pretty ripshit, as they were sure those were theirs.” A source close to Apollo said simply: “The two companies that prevailed paid a higher price than we were willing to offer.”
Many industry observers believe that the key to Apollo’s strategy for making money in the local television industry is the Northwest transaction. Brady, at Northwest, was able to cut lucrative, above-market re-transmission deals with the big cable television players such as Comcast, Charter, and AT&T, and apparently those contracts contain an “after acquired” clause, which in effect allows any additional television stations acquired to also get the same, higher re-transmission rates. That remains to be seen, of course, since Apollo was the acquirer of the Cox stations, not Northwest. “I spoke to two friends of mine at Comcast and Spectrum,” the Wall Street banker said, “and they said, ‘Look, unless Northwest Broadcasting is the one that has the contract here, if they think we’re going to respect that after-acquired clause just because they bought both assets at the same time, they’re smoking crack.” But the source close to Apollo said that renegotiating re-transmission rates is standard industry practice and no different than what Nexstar is going to do with the Tribune stations. “We were able to purchase two companies around the same time, allowing us to act like a strategic player,” the Apollo source said.
Once its deals close for Cox and Northwest (probably later this summer), Apollo will become the seventh-largest owner of local television stations in the country, with access to 11 percent of American households. It will be the only large local television-station group in the hands of a major private-equity player, whose mandate for its investors is to make annualized returns of 15 to 20 percent annually. Aside from Tegna, which is a publicly traded company with a market capitalization of about $3.5 billion, and Nexstar, with a market capitalization of $5.3 billion, the other big owners of local television stations—Hearst, Scripps, Meredith, and Graham Holdings—are family-controlled and “are not sellers,” said the Wall Street media veteran. “That might mean whatever aspirations Apollo has are short-lived and it’s a fast round trip. Maybe they turn right around and sell what they bought if they cannot achieve the scale they had aspired to?” Apollo can be patient: “We’re interested in adding more, but at the right time and at the right price,” said the source close to the firm.
Leon Black may be playing for more than just money anyway. “It’s purely economic power,” the Wall Street veteran said. “If you control a bunch of television stations that get senators elected, you have just a bunch of economic power. These guys are economic pirates, and they know that television is what gets senators elected. If you get senators elected, you get laws passed and help every industry you have an investment in.”
The Apollo source insisted the firm is not interested in political influence. “We’re financial people,” the source said, adding that Apollo’s stations will “have the highest standards” but in a “100 percent nonpartisan way”—a smart business model, too, since Sinclair, Fox, MSNBC, and CNN are all going the more partisan route. Ultimately, the source said, Apollo is a contrarian value-investor, not afraid to tread where others won’t or where others see too much risk. Sure, it may look like Apollo paid high prices for both Cox and Northwest, or that Apollo is looking to buy political influence. But the firm has never seemed to mind criticism. “In some ways it benefits Apollo,” the source concluded, “if some people think it’s stupid. That’s fine. That’s investing. When you’re going against the grain and trying to find value, it’s not uncommon for people to disagree with you. We’re fine with that. That’s part of being a contrarian.”
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