The Invisible Batter – The Untold Story of the 2002 Purchase of the Boston Red Sox
One of my first professional assignments was to assist my boss in helping a local attorney with a complicated estate planning project for his best client. I had recently graduated from the Boston University School of Law Graduate Tax Program. In theory, this should have qualified me to handle almost any tax problem. I quickly learned that technical expertise is never enough. It is almost equally important to have a measure of creativity and an understanding of people as well. It was somewhat of a humbling realization that I was not completely prepared for my chosen career, but I was dedicated to acquiring a creative touch and necessary people skills, so I worked hard to augment the academic and more technical part of my background. I had a lot to learn, which I eventually did with the help of the seasoned tax practitioners in my office, KPMG’s superb educational programs, and the extensive network of KPMG experts in other offices.
The assignment from the local attorney, a general practitioner, was to review his client’s financial and personal information to help provide suggestions leading to a comprehensive estate plan for his client. The attorney relied upon us for the financial and tax aspects of the overall plan. He specifically asked us to comment on a proposal that the client had received from an insurance professional. The insurance professional suggested that the client use a private annuity to transfer all the ownership of his multi-million dollar business to his children. The insurance professional also suggested a variety of life insurance products to protect risks and provide liquidity to the family upon the death of the client.
The partner and I met with the attorney and were briefed on the background of his client. We gathered a large volume of financial, tax, legal, and personal files from the attorney who had done a good job of getting information from his client.
To prepare for my boss’s review, my tasks were to: 1) go through all of the information; 2) provide an evaluation of the potential estate tax consequences if the client was to die before any planning was done; 3) make detailed suggestions of planning techniques that could be employed; and 4) present the financial results of implementing those suggestions. I was also asked to carefully review the proposal from the insurance professional and comment specifically on it.
I carefully organized the material provided and then read all the documents. One document was a limited partnership agreement. It first seemed to be a relatively simple limited partnership used to hold investment assets. It proved to be anything but simple. It was the entity which owned part of the Boston Red Sox! The client was a limited partner in that entity. That was very exciting to me as I had been a lifelong Red Sox fan. I naturally read the document very carefully, feeling a kind of electric moment. To me, this was world-class stuff. I remember going to the partner’s office and excitedly showing him what I had found. He was not very excited as he was from New York and was a Yankee fan. His only comment was that it would be difficult to figure out what the client’s partnership interest was worth.
This paper is about the Boston Red Sox so I will not go into all of the details of the the planning suggestions here, but I will get to the relevant point of what occurred in 1972 that may have affected the 2002 purchase.
Back at my desk, I was very surprised to see that one provision of the partnership agreement gave the client, who was otherwise a limited partner, a veto power over any future transfers of the partnership’s ownership interest in the team. I was amazed that the client would have that power and even somewhat worried that such a power in the hands of an otherwise limited partner might pose some income tax risks to the partnership and to the client.
While I never did meet the client in person, we did work together. At our recommendation, the private annuity was a planning step that was not taken. This proved to be the right choice, as the client lived another 34 years before dying at the age of 89.
I felt privileged to have influenced a small and unusual part of the Red Sox world. I never realized that what I learned in 1971 might affect my life much later on.
Early on the morning of Saturday, October 7, 2000, I read in the local newspaper that John Harrington, the sole trustee of the Jean Yawkey Trust, had decided to sell the Trust’s 53% interest in the Boston Red Sox. I remember thinking that it would be an exciting time for New England to watch this sale process. It would be very interesting to see what the price might be and who would have the courage to buy a team that was reputed to barely break even financially.
The next week I attended a dinner meeting of the American Ski Company at Sliders Restaurant in the Grand Jordan Hotel, part of the Sunday River Ski resort in Newry, Maine. I was a member of the board of directors of that company. We assembled about 6:00 P. M. for a buffet dinner to be followed by a special Board meeting. I walked up to the buffet table just behind Les Otten, the CEO of the company, who had just arrived. We greeted, shook hands, and I asked him if he had noticed that the Red Sox had gone up for sale as I knew he was a big fan. He said he had read the recent article in the Boston Globe.
I then asked, somewhat in jest, “Are you going to try to buy the team?” He quickly answered, “I will if you join me.” That is exactly how it all started.
The next day Les called and we discussed what we needed to do to start the process of the acquisition. I assumed that he was calling to say that the conversation about buying the Red Sox was fun but probably a lot more than a couple of guys from Maine should be entertaining. Les had no such thought. He was energized and ready to proceed. I was privately reluctant, but did not want to lose face so continued on the spoken path. I offered to select and retain a law firm to assist us with the formation of an acquisition entity. I had been doing more thinking than sleeping the night before. I strategically selected the Portland firm of Preti Flaherty and specifically, Severin Beliveau Esq. for several reasons. First, I knew that Senator George Mitchell was of counsel to that firm and was a personal friend of Severin. Second, I had been told that Senator Mitchell had a special relationship to my long ago client with the Red Sox ties. I was quite sure that if we were to have any chance at all of acquiring the team we would have to have all the help we could get.
The next few weeks were busy. We formed Long Ball, LLC, each owning 50%. I opened a Long Ball checking account with a modest deposit of $1,000. Les contacted the John Harrington office to let them know we would be seeking to buy the team. We decided to put $25,000 each into the Long Ball checking account as our initial funding for expected expenses. I deposited my $25,000 in December of 2000. The Harrington office made sure each of us received the Major League Baseball Application as that organization had to approve any purchasing person and each member of any purchasing group. We also learned that each group had to pay a $25,000 initial fee to enter the bidding process.
We met in mid-December with Severin Bellevieu to ask him to contact Senator Mitchell for us. I knew Senator Mitchell a little as I interviewed with him when I was about to graduate from law school and later sat on a panel with him at a Colby College symposium. I did not know if he remembered me. Severin reported back that Senator Mitchell would meet with us in New York City where he lived and I suggested the office of Lindsay Goldberg, a private equity firm in Manhattan that I had a relationship with. I was thinking that location would show Senator Mitchell that we had some connections. I arranged for the senior person there to ‘stop by’ and say hello to the Senator. At that time I did not know they played tennis together – so much for trying to show off.
It was an interesting meeting. Senator Mitchell was gracious but also asked the difficult question,“Where will the money come from?” At that time, we were thinking the sale price would be under $300 million. Our strategy was to fund the acquisition with a ‘guaranteed’ public offering. We had already used my contacts with A.G. Edwards and Sons, a brokerage firm, to secure their tentative commitment to conduct a public offering with their best efforts in order to provide net proceeds of $500 million. We assumed that a ‘best efforts’ offering would not be an acceptable bid, even if the bid was the highest. In order to support our plan, we met with the representative (another friend) of a large insurance company to see if we could purchase a bond or other instrument to guarantee the public offering. The insurance company was interested in the concept and agreed to seek approval from their senior management.
Senator Mitchell told us his background in baseball, including having done a special project for the Commissioner of Baseball and that he served on the Board of the Florida Marlins. We were delighted when the Senator agreed to join us as the third equal partner. We waived his $25,000 equity contribution.
Les became very busy in Boston, meeting with city officials, public relations firms, and architectural firms to get ready for placing a well planned bid for the team. He enjoyed the public relations part of this endeavor. I disliked publicity and maintained a low profile through the early part of our work until my name was mentioned in several newspaper articles. It was interesting that one of the Boston Globe sports reporters, I believe it was Dan Shaughnessy, tried to reach me by phone and instead reached my son with the same name. I had an unlisted number. The reporter asked my son if he was part of the Maine group looking to buy the Red Sox. My son told him no, but his father was. The reporter asked for my phone number. My son, being well trained, said that he could not give him the number, but would tell me about the call. I never returned the call.
It was a terrible day in early January when Severin called to say that Senator Mitchell had decided not to pursue the acquisition with us, citing the expected birth of a child. That was bad enough, but Severin went on to say that his firm felt it best to no longer represent us. The news from Senator Mitchell was a huge blow and the loss of the law firm hinted strongly that some logical minds were certain we did not have a chance in our quest to be Red Sox owners. Ultimately, it helped us pursue a wiser course with our financing. Several years after we were the successful bidder, I had an occasion to again retain Severin and his firm. The second time, he and his firm stayed the course.
Les was learning his way around Boston politics and wanted to replace the Maine law firm with a known firm in Boston. We were a little late in gaining a quality legal representation in Boston, as other groups planning to make a bid had retained many of the larger firms. I believe in relationships, so I contacted Christine McCarthy, a young associate with McDermott, Will and Emery, a quality Boston firm. She had been a school mate and fellow softball player with my daughter at Gould Academy in Bethel Maine where both Les and I were on the Board of Trustees. Her firm did not have a conflict so we retained them.
On March 5, 2001, I wrote the check to the Jean Yawkey Trust for the $25,000 application fee, depleting our checking account as Les had not yet put in his $25,000. I was worried that he might not do so after we lost Senator Mitchell and our funding concept started to look very weak. However, Les was never faint hearted and put in his money in May of 2001.
It became clear to us that we needed to add partners, partners with money. Les had met Tom Werner on one of his skiing trips out West. Tom was an avid baseball fan and had owned interests in a major league team before. Les convinced him to join us and Tom became equal partners with us in Long Ball, LLC. He contributed $50,000 for his interest which was needed to pay expenses. I actually did not meet Tom until after the acquisition but dutifully sent him his Long Ball, LLC paperwork each year including the K-1’s needed for filing his personal tax returns.
As the summer of 2001 unfolded, I was not involved much as Les handled the activities and relationships in Boston. It was during that time that Tom contacted John Henry and the rest of the story is mostly known to the public. John brought Senator Mitchell back in as a special consultant. The financial piece was assisted with the addition of other members of the acquisition team including the New York Times.
In October, Les called me at my second home in Marco Island, Florida. Les asked me to “listen very carefully.” He said the group wanted to buy me out and I think he mentioned that John Henry did not want any small owners involved. Les knew that I was worried about the potential of a capital call, which I might not have been able to handle. He offered to pay me back all I had put in, plus $25,000. He said the group would pay me promptly. I was conflicted but was more worried about a capital call than courageous about going forward, so I accepted. Les said the group would send me the paperwork and pay me promptly after all documents were executed. At that time, I did not know that Les and Tom had formally joined in a substitute entity including John Henry and others for the continuing quest to purchase the team. Long Ball, LLC was ignored.
After agreeing to sell, I felt a little relieved but had this empty and hollow feeling deep inside. However, I was ever a Maine guy – a person who looks to the future and lives with past decisions. By early December however, I started to worry. I had signed release documents but I had not been paid. I asked Les several times when I was to be paid. He told me not to worry that the guys were extremely busy in pursuing the acquisition. As Christmas approached, I set a deadline for myself to take action by January 1st if I did not receive payment. I was concerned that I would be strung out until the bidding came to a conclusion and if the bid was successful, they would pay me and if not I would never see the money. Maybe it was needless worry. Yes, it was a relatively small amount of money, but the idea of getting stiffed did not sit well.
On January 2, 2002, I went to my friend and lawyer, Gregory Tselikis, of Bernstein, Shur, Sawyer and Nelson in Portland to ask him to prepare a letter to rescind my agreement to release my ownership interest. Greg prepared the document; I signed it, and Greg delivered it to Chris Howard, another Portland lawyer who represented Les (and for this purpose) also the Group. I do not know the immediate reaction of the recipients of the letter, but I can guess that it was not a good moment for Les as he had probably been under a lot of pressure to ‘control’ me. It is also possible that Les may have promised ownership interests to others who helped him with the work in Boston.
I then stood alone on the sidelines watching the newspaper for information about how the sale process was proceeding.
About midnight, the day that the group’s bid was accepted, Les called me excitedly, saying “We won! We won!” I congratulated him and thanked him for all his hard work, all the while not knowing where I really stood. I was still a one-third owner in Long Ball, LLC, the applicant to bid on the purchase, but an entity that had been ignored for many months.
I asked Greg to contact Chris Howard to ask what ownership documents I would be receiving. He received the response that I should honor the original and now rescinded agreement. Greg told him that I (Dave) knew about the doctrine of diversion of corporate opportunity and that he had significant and valuable rights now that the group’s bid was successful, so action needed to be taken in Dave’s favor.
We did find out that the group, in closing on the purchase, included me in the documentation as an owner. Chris asked me to complete another Major League Application to qualify as an owner. I found that odd as I had done so at the beginning of the process, but I complied.
The serious negotiation then began. I expect that again Les was told to get rid of me. At that time I had never met any of the group except Les, so I am sure no one had any issue with me as a person except that my rights were only to be a small owner. Of course they may not have liked that I rescinded the earlier agreement but logically they just should have paid me in 2001 and all issues with me would have disappeared. Greg and Chris did the negotiating as neither Les nor I wanted to be directly involved. We were friends and I was still on the Board of American Ski Company and had to interact with Les in that capacity. Chris tried almost desperately to get me out without providing me any ownership and Greg was equal in his pursuit for me to gain an ownership interest. I fully recognized that Les had carried the Boston effort almost by himself but also realized that a ‘partner is a partner.’ I was willing to let Les have the majority of the ownership interest, but I was determined to be an owner, however small. I assume Chris convinced Les that he was never going to get rid of me and that Les would have to deal with the Group. That must have happened as Les and I reached an agreement that I would receive a small interest as a Class A owner and be paid the cash amount that I had agreed upon before, my investment plus $25,000. In addition I secured the agreement that I would never be subject to a capital call. I was happy even though I knew if we had pushed harder or gone to court I would have received a lot more but it would have necessarily involved Tom Werner as well and he, I assume, was never aware about most of this. I have never talked with him about this nor with Senator Mitchell.
When Greg told me of the resolution, I was happy, so I signed the agreement. I did not then know that it was not close to being over.
I asked Greg to make sure the ownership documents included me and that I received all rights associated with being an owner. Weeks went by and no ownership documents were forthcoming. Greg called Chris regularly but was told it was out of his hands and also mentioned that in-house counsel for the group said that John Henry would not sign the requested documents. The in-house counsel also said that the group’s outside counsel, Sherman and Sterling, had told John that he should sign the documents.
Months went on and nothing happened. Finally, I asked Greg to file a complaint in Suffolk County Court, in the Commonwealth of Massachusetts to force John to sign my ownership papers. I worked with Greg on the wording of the complaint and made sure it contained all the facts of what had gone on, even the meeting in New York. I thought if the complaint mentioned Senator Mitchell that any ensuing publicity would force John to sign.
The court process proceeded. John Henry was served at his home in Boca Raton, FL. I still feel embarrassed about that as I did not like it – involving the personal part of his life. This was the one and only time I ever sued anyone. Still nothing happened. I did not like the idea of having to go to court but was fully prepared to do so. I actually tried to call an attorney, Woody Flowers from Sherman Sterling. I knew Woody a little from my early years at KPMG. I had made a speech from the floor of the 1978 KPMG annual meeting, speaking against the inclusion of a comprehensive covenant not to compete in the partnership agreement. The assembled partners sided with me but the senior and deputy senior partner and Mr. Flowers were taken by surprise at the reaction from a group which usually agreed with management on all firm issues. I assumed Woody would remember me and might tell his partners representing John Henry that I was a ‘stubborn Yankee’ as I had called myself that long ago time at the Boca Raton Hotel. My call only revealed that Mr. Flowers had retired.
My persistence finally paid off. Two days before the defendant was required to file an answer to the complaint, the ownership papers were signed and a check was received. In 2002, I thus became the smallest owner of the Boston Red Sox.
I never knew what the client from years ago (the invisible batter) did or did not do or even if he had continued to retain the special power afforded him in the limited partnership agreement, but I always think warmly of him and Senator Mitchell when I glance down at the Red Sox ring on my right hand.