DEL.ICIO.USATLANTA SPIRIT LAWSUIT
Hawks-Thrashers verdict could cost Turner more than money
The Atlanta Journal-Constitution
Sunday, December 14, 2008
This is a payout to a car dealer that Ford or General Motors would love.
On Tuesday a jury awarded Texas car dealer David McDavid $281 million after deciding that Atlanta-based Turner Broadcasting System cheated him out of ownership of the Hawks, Thrashers and Philips Arena operating rights.
Gregory Smith/AP
A jury ordered Turner Broadcasting to pay $281 million to David McDavid, saying it cheated him when he tried to buy the Atlanta Hawks, Philips Arena operating rights and the Atlanta Thrashers.
That amount is almost three times the $96 million he was going to pay for them in 2003. It’s $100 million more than McDavid’s net worth at the time — a figure that Turner officials and an NBA executive testified made them nervous.
It’s also money that the teams’ current owners — an eight-man investor group known as the Atlanta Spirit — probably wish they had right now.
The teams lost millions under Turner. They continue to bleed in the hands of their current owners.
It’s unclear how much — the exact figure was never revealed in the two-month trial — but co-investor Michael Gearon Jr. testified that some of the owners have put in a total of $130 million since buying the teams from Turner in March 2004.
That figure likely includes operating losses as well as the money necessary to pay for salaries and other things to keep the teams running.
On top of that, the group is entangled in a high-profile court battle that involves how much the teams are worth and how much co-owner Steve Belkin would receive for selling his 30 percent stake.
That said, the Spirit gets to keep the teams, and it’s Turner Broadcasting — and parent company Time Warner — that would owe McDavid the $281 million.
An analyst said the amount would have “minimal” impact on Time Warner’s earnings, and in Turner’s view, McDavid shouldn’t be making any plans to spend that money.
“We disagree with the decision of the jury, and we intend to challenge it,” said Misty Skedgell, a company spokeswoman. “We’re currently evaluating all of our options to determine the most effective way to see the decision overturned.”
The company has options. They include: asking the judge to overrule the jury’s decision; requesting a new trial; filing an appeal. Any of the three requests have to be filed within 30 days of when a final judgment from this trial is entered, and then additional legal time clocks start ticking.
Tarnished brand?
Unlike a “Law and Order” plot, this issue could take years to resolve.
Regardless of whether Turner cuts a check for the full amount, a lower one or pays nothing at all, there could be a cost to the media company that goes beyond the monetary judgment. The names of Turner and its networks are plastered across Atlanta: the baseball field, CNN headquarters, the billboard advertisements for new shows on TNT or TBS.
Now, the company that owns the Cartoon Network has been painted as a shady business dealer. It’s not “very funny,” as the TBS slogan goes.
Experts say such
trials put companies in a bind and debate whether they inflict lasting reputational harm.
“The question is, ‘Do I want to tell my story or not, and if I don’t, I have to recognize that the other side is going to tell their story,’ ” said Alan Ulman, a public relations consultant based in Atlanta. “It’s like walking into a boxing ring with your arms tied behind you and letting the other boxer pummel you. You’re going to be in the ring, so you might as well defend yourself.”
Annemarie Marek, president of Marek & Co., a brand consultancy group in Dallas, said Turner has nothing to worry about.
“In this particular case, when a jury decides that you haven’t committed fraud, in my view, your brand is OK. There’s no damaged goods,” Marek said. “I think TBS gets what makes a good brand.”
View from jury box
The only impressions the jury could go on were the witnesses and evidence presented in the courtroom. After the trial, the foreman, Ashish Gogia, said the jurors brought with them outside experiences and beliefs. But in the end, he said, they had to set those aside and focus on the law’s requirements: Was there a strong intent to be bound by a contract? Yes, they decided.
And McDavid’s camp appeared to be more honest in how it negotiated to buy the teams and arena rights, Gogia said Tuesday. Witnesses for Turner, which included company executives as well as investors who helped put together the Spirit group, weren’t “on the same page” when they testified, Gogia said.
Members of the Atlanta Spirit include the son and son-in-law of Turner Broadcasting founder Ted Turner. The others, including longtime family friends Michael Gearon Sr. and Jr., have ties to Turner or the company as well.
Witnesses for Turner — company executives, lawyers who helped broker the deal with the Spirit, and the investors themselves — all said they never talked to Ted Turner about the deal and denied that it was an “inside job,” as McDavid’s attorneys claim.
But Spirit investor Bruce Levenson said in a taped interview with lawyers that when he met with a Turner executive, “he told us that they had been in negotiations with another party but that the deadline for coming to an agreement with that other party had passed.”
“Somehow,” Levenson testified, “I came to know that it [the other party] was David McDavid.”
Turner executive Jim McCaffrey, the principal negotiator in selling the teams and arena rights, testified multiple times that the deal with the Spirit was the better one for Turner. And, while it became clear through court documents and testimony that the Spirit investors knew Turner was negotiating with McDavid, no one told McDavid about the other group.
“It never occurred to me to do that,” McCaffrey told the jury, later saying he believed Turner negotiated in good faith with McDavid. “I didn’t want to show my hand. If you show your hand, it would have given them leverage.”
He said he didn’t want the information to leak publicly, either.
“This is good. We were able to keep this quiet, the Spirit negotiations,” he told the jury.
Turner executives testified that all the issues had to be worked out before a deal could be signed. That didn’t happen, they said, so there were no signed documents and no deal.
With the Spirit, Turner inked a deal on Sept. 12 and announced it the next week. Yet Turner CEO Phil Kent testified that “the transactions weren’t consummated until months later.”
“There were a lot of things still being discussed,” he said. “It may have been a term sheet [that was signed]. I just don’t remember.”
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