In a deal with the forces of Rupert Murdoch and Walt Disney, billionaire Haim Saban comes out with the biggest smile.
The biggest cash payout ever to a Hollywood mogul--$1.5 billion--has just gone to a self-described "cartoon schlepper" named
Mixing self-deprecating humor with an ego to match his burgeoning wallet, this 57-year-old entertainment titan is unlikely to let his money sit. But where the dough will go--and whether Saban can repeat his magic--is far from clear.
His big payday itself was in limbo until late October. After marathon negotiations,
Saban's formidable bargaining skills were earlier used in exercising a put option in the contract with Fox that required Murdoch to buy him out. At the time--and through late October, until EchoStar won the bidding--News Corp. had been intent on acquiring DirecTV from General Motors, at a price that would have strained the News Corp. balance sheet. The last thing Murdoch and his operations chief, Peter Chernin, needed was to play a poker game with Saban over the value of Fox Family. Four months into the process, Fox Family was for sale to outsiders.
| Mighty Morphin' Saban |
| 1975 Haim Saban moves to Paris after he goes into debt as a concert promoter in Israel following the Yom Kippur War. Net worth: negative. |
| 1983 After building a business in Paris managing and producing music for TV shows, Saban moves to Los Angeles. Net worth: $500,000. |
| 1989 Establishes a niche by providing free music for cartoons in return for royalties. Sells 25% of the company to Luxembourg broadcaster RTL for $15 million. Net worth: $45 million. |
| 1994 Power Rangers enters its second season on Fox TV. Licensed merchandise sales balloon to $1.6 billion worldwide. Net worth: $200 million. |
| 1995 Saban Entertainment and Fox Kids TV form a joint venture. Buys back stake from RTL for $40 million. Net worth: $250 million. |
| 1997 With Fox, buys Pat Robertson's cable TV Family Channel for $1.9 billion, using borrowed funds. Net worth: $250 million. |
| 2001 Prompts sale of Fox Family Worldwide to Disney for $2.9 billion in cash plus assumption of debt. His take: $1.5 billion. Net worth: $2 billion. -K.A.D. |
Saban's timing remained impeccable. He triggered the deal with Disney just prior to a drop in both media and Disney valuations. By the time the money changed hands, says Sutro & Co. analyst David Miller, Fox Family went for 60% more, as a multiple of operating income, than Viacom paid when it acquired Black Entertainment Television in January.
The essence of the Saban money touch is an uncanny ability to parlay small properties into big ones. He entered into the Fox venture in 1995, when his biggest hit, Power Rangers, was at its peak. Fox didn't do badly, but it didn't get everything it hoped out of the ultimate arrangement; Saban, after joining forces with Fox, failed to come up with another kids' hit.
"Sure, we were disappointed [with Fox Family Channel's performance]," says Peter Chernin. "We all would have wanted the progress to go faster, but I also think reality suggests that these things take a long time."
Others are less charitable. "Saban didn't do a real good job of operating this company," says UBS Warburg analyst Christopher Dixon. "He missed a huge opportunity to leverage Fox's programming to a much wider audience."
Saban insists he sold a winner. Fox Family had "four quarters of consecutive growth in the very important 18-34 and 18-49 demographics. We have transformed this channel from a senior-citizen channel to a true family channel," he boasts. "That's very difficult."
Saban has also remade his lot in life. Born in Alexandria, Egypt, he moved to Israel with his family at age 12. His father got work selling office supplies. His mother, a seamstress, worked from the family's one-room flat in Tel Aviv. A natural instigator, Haim was kicked out of agricultural boarding school for leading one too many protests.
While serving in the Israeli army, he landed a booking for his band. Only problem was, he didn't have a band or know how to play an instrument. Saban found an existing group, the Lions, and learned to play bass guitar in what became a popular Israeli Beatles tribute band. "I was so bad the first couple months, half of the set my amplifier would be on minimum volume," he grins.
In 1983 Saban found his way to Los Angeles and came up with a licensing scheme as clever as the one that Bill Gates cut with IBM for the original PC. Saban offered to give TV studios free music--some of which he wrote himself--for use in cartoons. But he retained the back-end rights and thus the royalties each time a cartoon with his music aired. By 1989 that business became one of the biggest suppliers of music to television. That year he sold 25% of his company to Luxembourg-based entertainment conglomerate RTL for $15 million.
Saban's next coup came in 1992. A property he'd brought from Japan and shopped around town for eight years finally found a buyer in Fox Kids Network's head, Margaret Loesch. She was looking for something different and Power Rangers was it. Against resistance at Fox, Loesch aired the show the next year. It started gaining momentum and by 1994-95 was the biggest thing on children's TV. Saban soon had his offices--and name--atop a Westwood office tower. Fox got 12.5% of Saban's net on Power Rangers merchandise. "They wanted more, but I wouldn't let them have it," he crows. Saban himself got 10% to 12% of wholesale prices. Power Rangers still brings in $100 million annually in action figures and licensed merchandise, according to Jim A. Silver of the Toy Book, a trade publication. (Now that money goes to Disney, which owns the show and the rest of Saban's library.)
In his charming yet aggressive style, Saban wrung everything he could out of the show's success. In 1995, he says, Burger King offered him $15 million to do a Power Rangers promotion. McDonald's countered with $20 million. Saban gave the biggest restaurant chain in the world one day to get to Los Angeles and work it out. Sure enough, McDonald's people flew in from Chicago by 10 a.m. the next day and the deal was done by that night.
As good a dealmaker as he is, Saban may be just as bold a networker. He has contributed $4 million to Democratic campaigns since 1994. In September he was named chairman of the capital campaign for the party. He counts Bill Clinton, a sometime houseguest, among his pals. The former President didn't return our call about Saban, but he did send an e-mail. "Haim Saban ... went from being a supporter to a true friend," wrote Clinton. "He is fun to be with in the good times, and you want him in the trenches with you when the going gets tough."
Asked about his relationship with Rupert Murdoch, Saban pops up from the couch in his home library and shows a reporter a picture of Murdoch, Saban's wife, Cheryl, and Saban seated next to each other at a gala dinner. Murdoch is leaning toward the younger billionaire. "I talk. He bends over to listen," beams Saban, describing the photo.
Since 1988, using the profits from his music business, Saban had been buying up children's TV shows and by 1993 had 3,500 half-hours. Fox felt that Saban's experience and contacts in Europe, where he worked for eight years before moving to Los Angeles, might help Fox expand its children's networks there, too. Even before Power Rangers went on the air, Fox talked about buying Saban Entertainment for $400 million. But Saban turned it down. Fox Television boss Chase Carey came back with another offer: a joint venture between Saban Entertainment and Fox Kids Television. That interested Saban. "Fox had something that we could not duplicate: They had access to 98 million homes for 19 hours a week," he explains. "It was a natural marriage of content and distribution."
After more than a year of talks, the deal was solidified in December 1995. Saban and News Corp. each got 49.5%, but Saban chaired and ran the venture. Allen & Co. investment banker Stanley Shuman, who advised Saban (and is also on Murdoch's News Corp. board), took as his firm's compensation a 1% equity stake. Before the deal closed, Saban had repurchased, for $40 million, the 25% stake in the firm he'd sold to RTL.
Saban wasted no time in shaking things up. Before he came on board, Fox had been paying $300,000 to $400,000 in license fees for each half-hour children's show and would retain retailing, distribution and licensing rights. Saban says on average he was able to retain such rights, paying only $100,000 per half-hour. "Huggable lamb that I am, people tell me I'm a tough negotiator," he jests.
Fox Kids TV was the leader in its niche when Saban and Fox joined forces. But cable channels like Nickelodeon and the Cartoon Network were beginning to erode some of Fox's strength. Saban proposed buying Pat Robertson's Family Channel, which went to 70 million cable homes, to expand distribution in the U.S. At first, Fox and News Corp. people were divided. Saban prevailed, and he and Fox paid $1.9 billion, including $100 million debt. Saban again built on to his valuation pyramid. As collateral for a $1.8 billion loan to buy the Family Channel, he put up his share of the venture with Fox, which he says was worth about $500 million.
Saban quickly threw out all the old programming, making an exception only for Robertson's 700 Club. A promise to retain that religious show was part of the sale agreement. But the new slate of shows didn't draw the audience, or the advertising volume, Saban and Fox had hoped for. Prime-time ratings dropped 35% from 1997 through 2000. Programming expenses grew 16%, but net ad revenue fell 7%. In 1998 Fox had to lend Fox Family $125 million to prevent it from defaulting on loans.
Saban and his early ally Loesch argued about strategy, programming and money. He usually wanted to spend less. Eventually the disagreements became too much for Saban, and he and Carey effectively forced Loesch out. She is surprisingly unbitter about it. "It was crushing to me," she says. "But we have such a strong history. There is still a lot of respect."
Five years into the partnership, Saban decided to trigger a dissolution. "I thought the company really belonged inside Fox, where it would be able to take advantage of the direct synergies that can be created between wholly owned companies," he says. Per the contract, Saban exercised his right to sell in December 2000, at a price to be worked out between investment bankers from both sides. News Corp., after internal debate, decided to sell out as well. Factors were the $2.3 billion of debt on the asset, which News Corp. didn't want to carry; the desire to have more cash; and the admission that Fox wasn't likely to be the leader in the kids' TV business.
News Corp. folks wanted to hold an auction--there were five serious media suitors in line--but Saban says he favored identifying a buyer for whom the assets were the best fit. "And who more family than Disney?" he suggests.
At the Allen & Co. annual Sun Valley conference in July, Saban met with Michael Eisner, Peter Chernin and Rupert Murdoch. They talked numbers for about ten minutes, then broke apart. "We came back and shook hands in five minutes," Saban beams. Disney made the offer it later shaved by $100 million.
Despite the steep price, which comes to 46 times 2000 operating income (net before depreciation, interest and taxes), says Kagan World Media, the purchase makes sense. Disney already controls two cable properties: the Disney Channel, which airs mostly kid-oriented programming, and ESPN. But the renamed ABC Family Channel reaches 80 million homes, more than its other cable channels. With it, Disney is hoping to amortize the cost of its ABC programming with reruns of shows like Who Wants to Be a Millionaire. And the betting is that Disney will do a better programming job than Saban & Co. did. In Europe Disney also got 76% of publicly traded Fox Kids Europe, a channel that airs on basic cable in 53 countries.
The agreement ties Saban into a consultant role through June 2002. He can't compete in children's television for two years.
Otherwise, the possibilities are as boundless as he is brash. He's been in talks with several media properties in Israel (he's a dual citizen of Israel and the U.S.), and intends to make investments there. He mentions developing businesses and serving on media boards. He also plans philanthropy focused on children and on the U.S.-Israel relationship.
But that can only be a start. This is a man with people to call and deals to do.
