NASHVILLE, Tenn. — Nearly 20 years ago, George Gillett put together his first diversified business. Buying and borrowing, laying brick on brick, he troweled together a small conglomerate that included the Harlem Globetrotters basketball team, a golf-club maker, radio stations and retail boat franchises.
Gillett's tower rose to the sky--until the 1975 recession hit, earnings dwindled and he was forced to sell assets to pay debts.
Gillett started over in the television station business in 1978, borrowing and buying, piling paper on paper, until by this year he had amassed the largest group of network-affiliated stations outside those owned by the networks themselves.
People said George Gillett was a major player. And some people wondered about his debts.
"They say we borrow too much, that we bid too high, and in the face of that cautiousness, we charge ahead," says Gillett, 49, a voluble man whose voice seems to boom from a barrel. "Why do we do it? Why does the salmon swim upstream?"
In the past two years, this one-time salesman has emerged from obscurity to become one of the most influential--and controversial--of broadcasters. With 12 major stations that reach 13% of the U.S. television audience, he is the very model of the new broadcast entrepreneur, borrowing heavily, bidding high and wringing from his stations profits unimagined by the family concerns that once dominated the industry.
Gillett takes aggressive advantage of broadcast deregulation, prompting some in Congress to charge that he has sought to dodge government rules limiting station ownership and has exploited tax breaks offered to minority TV station owners.
Gillett has also won respect for his ability to improve stations' financial performance and for his interest in quality broadcast news.
Buying and selling at a rapid clip, Gillett has purchased 12 major-market stations for $1.26 billion over the past year. Gillett Holdings, his closely held company, paid more than $600 million for a 51% interest in six of the seven stations formerly owned by the now-defunct Storer Communications and $365 million for a majority interest in a big Tampa, Fla., station.
The company also owns a Wisconsin meatpacking company and the Vail and Beaver Creek, Colo., ski resorts, and it recently sold another five stations to a trust set up for Gillett's children. Gillett Holdings' TV stations now include three in California: KCST in San Diego, KSBY in San Luis Obispo-Santa Barbara and KSBW in Salinas-Monterey.
He has assembled the chain against daunting competition, for in recent years TV stations have attracted the hungry eyes of major media corporations, investment heavyweights such as Warren Buffett and Saul Steinberg, even doctors and dentists searching for a place to park cash. These investors prize stations for their ability to turn profits in good times and bad and for their ready marketability; they favor network affiliates in particular because of their strong attraction for TV audiences.
21 Times Cash Flow
But Gillett has usually been willing to bid more for properties, betting always that his strategy for managing the stations would make them profitable enough to cover his debts.
And the debts have piled up--to more than $1.5 billion, some estimate--as Gillett has paid top dollar and sold high-yield "junk bonds" bearing lofty interest rates of 13% to 17%. The company and its venture partners have raised $1.16 billion in the past two years through the sale of junk bonds underwritten by Drexel Burnham Lambert.
Last spring, in outbidding NBC and Westinghouse Corp. for the Tampa station, Gillett offered 21 times that station's cash flow--or net income plus depreciation--which was substantially above the 10 to 12 times cash flow that buyers usually feel comfortable offering.
Gillett Holdings had operating profits of $90 million on revenue of $670 million last year, according to a company prospectus for a junk-bond offering. Revenue should edge close to $1 billion this year, with the addition of the Storer stations, which were bought in a joint venture with the leveraged buyout specialists Kohlberg Kravis Roberts & Co.
"George has put all his chips on the red and spun the roulette wheel," says Jeffrey N. Epstein, a First Boston Corp. investment banker who specializes in the communications industry. "He's a smart gambler. Myself, I wouldn't do what he's done."
A native of Racine, Wis., Gillett began his career as a salesman for Crown Zellerbach Corp., then went on to work as a McKinsey & Co. management consultant, put together a computer software company, and managed and owned a part of the Miami Dolphins professional football team.
In 1968 he acquired the Harlem Globetrotters, which became the core of his first diversified company, which was called Globetrotter Communications.
The staff of Gillett Holdings has grown in recent years, but the key player is clearly still Gillett himself, who promotes his company with the ardor of the former salesman he is.