Bush’s Life in Business
The whole story, from a 1999 investigation into his record.
July 17, 2002 8:45 a.m.
nationalreview.com
EDITOR’S NOTE: Virtually every day there is some new "revelation" concerning the business career of President George W. Bush. But so far there have been no reports of anything that is actually new. Rather, the controversy has focused on events that were extensively examined during Bush's political career in Texas and, later, his campaign for the White House. So what is the real story of Bush's life in business? In the spring of 1999, when it became clear that Bush would run for president, Byron York took a close look at the record and came up with the following report, which originally appeared in The American Spectator:
n April 15, 1999, Texas governor George W. Bush, following the traditional practice of the president, vice president, and many of the nation's top politicians, made public his 1998 tax returns. It's something Bush has done each year since his first governor's race, but this time was different; the figures contained in the returns were, at least to anyone unfamiliar with Bush's recent business affairs, simply astonishing. The governor, who had reported income of $271,920 in 1997, estimated that he made $18.4 million in 1998. His tax bill alone was $3.7 million. "I never dreamt I'd write a check that big," Bush happily told reporters in Austin. "Of course, I never dreamt I'd make that much money, either."
Bush's income came from two main sources. The great majority — nearly $15 million — came from his stake in the sale of the Texas Rangers baseball team. An additional $3 million or so came from a blind trust that manages his investments (the trust fared vastly better in 1998 than it had the year before, when it reported income of less than $200,000). The smallest component of Bush's income was his salary as governor, $99,121. What was perhaps just as surprising as the size of the numbers was that the national press did not seem particularly interested in Bush's unusually good fortune. The New York Times devoted all of 137 words to the story; the Washington Post gave it 189. Other papers didn't mention it at all. But they will. Should Bush continue to run at the front of the Republican presidential pack, the story of how he made his money might well become the story of his campaign. Far more than tales of youthful drinking and carousing, the record of Bush's rise to wealth reveals how he became what he is today. It's a complicated tale of family connections, hard work, and sweet deals, topped off by a taxpayer-subsidized baseball bonanza that may leave some Republicans feeling queasy about how their candidate got rich.
YOU SAY ARBUSTO, I SAY Ar-BUST-o
Bush started off in the oil business. It was a natural choice; he grew up in Midland, Texas, after his father moved there in 1947 to begin a career that started in oil, led to politics, and ultimately took him to the White House. Sent to school at Andover, Yale, and Harvard, young Bush in 1975 followed his father's example and returned to Texas to make a name for himself. He used $20,000 in trust fund money to start an oil and gas exploration company which he named Arbusto — Spanish for "bush."
In the beginning, Bush was able to seek advice from a number of family friends, people like James Allison Jr., a newspaper publisher and political strategist who had run Bush's father's successful 1966 campaign for Congress, and Martin Allday, a lawyer and businessman whom President Bush would later appoint chairman of the Federal Energy Regulatory Commission. Allday introduced Bush to Paul Rea, a geologist and oil executive who would later play an important role in Bush's career. "George had his business degree from Harvard, but he didn't really know that much about the oil business," Rea remembers. Rea, Allday, and others suggested Bush take a crash course to learn about drilling, leasing, and the other basics of the industry. Bush followed their advice and signed up for classes at the local Permian Basin Graduate Center, an institute devoted to the business.
But Bush went off on a detour before he really got started. In 1978 the House seat from his district opened up, and Bush decided to jump into politics. He beat his opponent in the Republican primary but lost the election to Democrat Kent Hance, who successfully portrayed him as an Ivy League carpetbagger. Debating Bush on trips around the district, Hance would point out that "while my opponent was at Yale," he, Hance, was working hard right down home in Texas. Bush didn't have a chance.
So he went back to the oil business. In starting Arbusto, Bush, like other small entrepreneurs, financed his exploration by forming limited partnerships. He looked for investors willing to put money into the company and then rely on Bush's expertise to make a profit. In the beginning, they weren't that hard to find. Much of the money came from Bush's wide circle of family and friends; in particular, Bush's uncle John, a New York stockbroker, proved invaluable in the search for capital. "John Bush called me one day and told me about his nephew George, who was in the oil business," recalls Russell Reynolds Jr., an old family friend who runs an international executive recruiting company. "He asked me if I would be interested in investing. So George W. came to see me, and I thought he was an absolute star. A very attractive guy. Being a great friend of the Bushes, I put in a small amount of money in two of the partnerships."
Other family friends and supporters pitched in as well. According to an analysis in the Dallas Morning News, Arbusto's early investors included people like FitzGerald Bemiss, a childhood friend of President Bush's who invested $80,000; Bush's grandmother Dorothy, who invested $25,000; George L. Ball, chairmen of Prudential-Bache Securities, who invested $100,000; financier Lewis Lehrman, who invested $47,500; and John Macomber and William Draper, both later appointed to the Export-Import Bank, who invested $172,550.
"Obviously George knew these folks prior to his starting in the oil business," says Michael Conaway, an accountant who served as Arbusto's chief financial officer. "When George was getting investors, he certainly called some friends of his dad," adds Paul Rea. Indeed, especially after entering politics, Bush has occasionally come under fire for relying heavily on family connections to make it in business. "If his name was Joe Blow, it wouldn't have happened," says David Rosen, a geologist (and Democrat) in the Midland oil business. But all point out that oil and gas exploration involves lots of money and lots of risk. "You look wherever you can to put money together," Rosen says, "and if you've got connections, you use them." Besides, says Michael Conaway, all the investors "understood it's a high-risk business." Which was a good thing, because Arbusto was soon in serious trouble.
MR. UZIELLI'S $1 MILLION CHECK
The first well was dry. Then others didn't work out. Despite some successes to go along with those failures, by the early 1980's Arbusto's balance sheet was trending downward when the market intervened to make things even worse. " The price of oil dropped significantly in '82," Conaway remembers. "It became increasingly difficult to raise money." Bush needed investors, but he had already tapped many of the most obvious sources. So it was a very fortunate day in January 1982 when he found his biggest single benefactor in an international businessman named Philip Uzielli.
Now in his sixties, Uzielli attended college at Princeton, where he became friends with James A. Baker, the man who for many years played an integral role in nearly every aspect of President Bush's political life. It's not clear how Uzielli came to know George W. Bush, whether it was through Baker or some other person, because none of the main players is willing to talk about it. In a brief conversation, Uzielli refused to answer questions. Baker did not respond to a request for an interview. And a spokeswoman for Bush, Karen Hughes, told The American Spectator she doesn't know how the two men met.
However it started, Uzielli and Bush apparently became not only business partners but friends, socializing together in both Texas and New York. And when Arbusto got in a bind, Uzielli, using money from a Panamanian company owned by his family, came to the rescue with a $1 million investment. The money bought Uzielli a ten-percent interest in Arbusto, which raised eyebrows because all of Arbusto, including the desks and the paper clips, was worth less than $500,000 at the time. Why would a man invest $1 million to buy ten percent of a company that was worth less than $500,000? "Obviously Uzielli thought his million bucks was worth ten percent of the company," Michael Conaway says. "There were not hard assets there, but Uzielli thought it was worth it." Uzielli would ultimately lose nearly all his money.
About this time, Bush took another step to try to keep his company going; he changed its name. Arbusto became Bush Exploration. Company officials believed having "Bush" in the title would attract more investors than a firm with an obscure Spanish allusion to the owner's name. "Folks knew Bush but they didn't know Arbusto," Conaway remembers. "The name was important, so folks understood who the players were."
But even with the new name and the money from Uzielli, prosperity was not at hand. The market wasn't helping, and the rest of the fundraising picture was bleak. Conaway says Bush Exploration decided not to try another limited partnership for 1983, "because it didn't look like we could raise the money." By 1984, the company's assets were dwindling away. As Bush faced disaster, another friend stepped in — this time Paul Rea, the man Bush met when he came home to Midland.
Rea was closely connected to an Ohio businessman named William DeWitt Jr. DeWitt's family, best known for its ownership of professional sports teams, was also involved in the oil business. They owned a Texas exploration company called Spectrum 7; while DeWitt handled the business end, Rea, the geologist, made the drilling decisions. Rea says that by the early 1980's DeWitt had become so busy with his other interests that he was looking for an executive to handle Spectrum 7. "He asked me to find someone in Midland who would be able to run the business down in Texas," Rea remembers.
Rea immediately thought of George W. Bush. He set up a lunch meeting between the two men, and a deal was born. "DeWitt had gone to Yale and Harvard, and I thought maybe George might be a good one to invite to lunch," Rea says. "They had mutual friends from the Ivy League." DeWitt decided that Bush was the man. "It was a good fit," DeWitt told The American Spectator. "He had a good operating group in the area, and we were in Cincinnati and had a lot of interested investors." DeWitt soon okayed a plan to have Spectrum 7 buy Bush Exploration.
Not that Bush's company was all that attractive a purchase. "It wasn't because we wanted to buy Bush Exploration or anything like that," Rea says. " It was that we wanted a business manager." In February 1984 the deal was done; Bush became chairman and CEO of Spectrum 7, and Paul Rea became president.
The first year was a great improvement from the last days of Bush Exploration. Oil prices recovered and Spectrum 7 made some money. But things never went very well for very long. By 1985, trouble was again on the horizon, and this time the oil business was headed for a real disaster. "We could see the downturn coming," Rea remembers. "In late '85, people stopped investing."
Once again, Bush's company was in trouble. What to do? Bush and Rea hoped to merge Spectrum 7 with a bigger company in hopes of surviving the collapse in the price of oil. They wanted to take over the management of whatever new company might result, but were not able to find a suitable partner to make that happen. As it turned out, Harken Energy, a Dallas-based company that was aggressively taking over troubled oil firms, came knocking. Although Harken might have been interested in Spectrum 7 in any event, the deal was not terribly enticing; Spectrum, after all, didn't have much on the positive side of the ledger. But it still had a very valuable resource. "One of the reasons Harken was interested was because of George's name," Rea remembers. "They wanted to get George on their board."
"George was very useful to Harken," former Harken director Stuart Watson told the Dallas Morning News in 1994. "He could have been more so if he had had funds, but as far as contacts were concerned, he was terrific....It seemed like George, he knew everybody in the U.S. who was worth knowing." Watson also told the paper that the Spectrum 7 acquisition was "not too good a proposition" for Harken, suggesting that Bush was the real reason for the deal. Watson now says his words were taken out of context. "I was very much for George," he told The American Spectator in a recent interview. "I thought he was a fine man, a good addition to the board. And he did know everybody."
But Harken wanted Bush on the board and not running the company. In spite of that, Bush accepted. The deal, finished in September 1986, brought him a large amount of Harken stock, worth at least $500,000 at the time, plus a consulting contract that paid him as much as $120,000 a year. It was the end of Bush's career as a chief executive in the oil business, but it made possible the beginning of a new, and vastly more lucrative, line of work.
RANGER GEORGE
In 1987 and 1988, while still a consultant to Harken, Bush took time out to help in his father's successful campaign for the White House. When President Bush was elected, George W. returned to Texas to contemplate his next move. That same year, 1988, a Fort Worth oilman named Eddie Chiles, who had owned the Texas Rangers for many years, began to think about selling the club. When word of that got out, one of the first people to hear was none other than William DeWitt Jr., the Ivy Leaguer who clicked with Bush at the lunch that led to the Spectrum 7 deal. DeWitt, whose family until recently had owned the Cincinnati Reds baseball team, began to put together a group of investors to buy the Rangers.
But Major League Baseball Commissioner Peter Ueberroth had problems with the lack of local money in DeWitt's group. "We met with Ueberroth and he said, 'You've got a good group, but why don't you get more Texas investors,'" DeWitt recalls. "It was clear at the time, as it is now, that the control person needs to be a resident of the city or area where the team is located." So DeWitt undertook to enlist some Texans in the deal — and he immediately thought of Bush. "We were close friends throughout the period," DeWitt says. " George was a great baseball fan. We used to go to games together when we'd be on the road."
But Bush had a problem. He wasn't rich, at least not by the standards of people who buy large interests in professional sports teams. Still, he had something no one else had, at least in quite the same way: a connection to Eddie Chiles. "On a personal level, George had the most contact with Eddie," DeWitt says. "I never really talked to him." DeWitt needed Bush to win the owner's blessing for a sale.
As it turned out, Chiles was a fan of the Bush family. "Eddie had lived in Midland and was very good friends with the Bushes," remembers Chiles's widow Fran, referring to the president and Barbara Bush. Chiles recalls her husband referring to George W. as a "young pup" back in the 1940's and 50's. Bush's presence in the ownership team, Fran Chiles says, sealed the deal for her husband. "Eddie didn't want to deal with anybody else after George got involved," she says. "He was delighted to turn the team over to younger people and especially George Bush."
Bush was also helpful in bringing deep-pockets Dallas businessmen Richard Rainwater and Edward "Rusty" Rose into the deal. Each of them put in several million dollars — Texas dollars that would please Ueberroth. Bush also brought in a big investor from New York, an old college friend named Roland Betts, who had initiated Bush into the Delta Kappa Epsilon fraternity years earlier at Yale and went on to make millions financing movies.
It worked; Chiles and Ueberroth approved and the sale took place in March 1989. The purchase price was $46 million. Bush, who didn't have lots of cash available, borrowed $500,000 ("fully collateralized," according to his spokeswoman) to put in the deal, later adding a little more for a total investment of $606,000. That bought him a 1.8 percent interest in the team. But he had another agreement with his partners through which he would be handsomely rewarded for his role in putting the deal together. The contract called for Bush to be a managing general partner; once all the partners recouped their investment with interest, he would be given an additional ten percent interest in the team. Then, instead of owning 1.8 percent of the Rangers, he would own 11.8 percent. It was the deal that would make Bush a rich man.
But first he had to get the money to pay off the loan he took to make his initial investment. His largest single asset was the chunk of Harken stock he had received in the merger. Through the first half of 1990, the stock price was quite consistent, moving between $4 and $5 a share. In June 1990, Bush sold two-thirds of his stake — 212,000 shares — at $4 for a total price of $848, 000. At the time of the sale, Harken was moving into a period of financial difficulties. In the months following Bush's sale, the company announced a quarterly loss and the stock price went into a long, slow decline; by the end of 1990, it was $1.25 a share. Since Bush was not only a member of the board of directors but was also on a committee assigned to study Harken's financial situation, his decision to sell a few weeks before the slide began led to accusations that he used insider knowledge to get out when the getting was good.
Bush denies any wrongdoing and has often said he was unaware of the difficulties within Harken. "He thought he was selling into good news," spokeswoman Karen Hughes told The American Spectator, adding that if Bush had waited to sell the stock he could have earned considerably more than he got. That would, however, have required his waiting at least a year; it was not until June 1991 that Harken got back up to $4 a share. By September 1991 it briefly hit $8 a share.
In 1991 the Securities and Exchange Commission investigated the sale and took no action against Bush or anyone else. "I don't remember a lot about it, other than there wasn't a lot about it," says William McLucas, who was the SEC enforcement chief at the time. "The facts just didn't support any judgment that this was something that would result in a serious enforcement proceeding." Nevertheless, Democrats brought the issue up in 1992, as President Bush was running for reelection; it became part of several news stories recounting alleged business improprieties by Bush family members. Texas governor Ann Richards revived the story during the 1994 gubernatorial campaign and also suggested, without evidence, that President Bush had rigged the SEC investigation, which commission officials denied.
Whatever headaches the stock sale caused George W. Bush, they were minor compared to the business opportunity — the Rangers investment — that the sale financed. And in the early 1990's, as part of the team's new management, he began work on the biggest deal of his life.
BALLPARK FIGURES
Compared to other teams around baseball, the Rangers were not exactly a money machine. The team was saddled with one of the worst stadiums in baseball; Arlington Stadium, located between Dallas and Forth Worth, was a former minor-league park, and although it had been modernized in the 1970's, it had none of the big-league amenities — like luxury boxes — that make present- day sports facilities so profitable. For Bush and the new owners, building a new stadium would be the first, and perhaps the most important, step to success.
They envisioned a fabulous new facility, a beautiful retro design like those being built in Baltimore and Cleveland. It would have a great field, stores, places to eat, a museum — a real showplace. But the cost of such a park was estimated at $189 million, and even though they were among the richest men in Texas — and the United States — the new owners didn't want to pay for it.
So they came up with what they called a public-private partnership to finance the project. The deal was essentially this: the Rangers supplied the team, and the city of Arlington supplied the money. Bush and the other owners asked the city to give them $135 million, by far the largest share of the cost of building the stadium — and they hinted they might take the team elsewhere if the city refused to pay. The team pledged to kick in the rest.
Arlington Mayor Richard Greene aggressively promoted the deal, saying it would bring $100 million dollars a year in new revenue to the city's economy. He proposed that the city get the money by adding one-half cent to its sales- tax rate. And he promised that the Rangers would put in $30 million "up front, like a down payment on a house," to get the deal going.
A referendum was held in January 1991, and it was a smashing success for Bush and the Rangers. Voters turned out in record numbers to overwhelmingly approve the tax increase. Then it emerged that the Rangers would not produce their money up front, but rather over time, in the form of a $1-a-ticket surcharge, paid by the fans. The Rangers also got a loan from the Arlington Sports Facilities Development Authority, the government body that handled the financing, to cover part of the rest. On top of that, the team negotiated what was in essence a rent-to-buy agreement; the Rangers would pay about $5 million in rent and maintenance each year for twelve years, but that money would be applied to an agreed-upon purchase price for the stadium. Not by coincidence, the agreed-upon price was $60 million, which meant that at the end of the twelve-year agreement the team could buy the facility for nothing.
And there was one more thing. Not only did Bush and the Rangers want the deal to include the land that was home to the old Arlington Stadium and its parking lot, they also wanted an adjacent 200 acres for commercial development. They got that, too. When the state legislature passed a bill okaying the use of tax money for the stadium, it also gave the city the power to condemn the extra land so it could be developed by the new team owners. Normally the government has the power to take land only for some compelling public need, but in this case, the land was taken and given to a private interest — Bush and the Rangers.
The new stadium was called The Ballpark in Arlington, and it was just as beautiful as the owners had said it would be. It opened to rave reviews in April 1994, as Bush was running for governor of Texas. Not surprisingly, he lavished praise not only on the stadium but on the deal that created it. Everywhere he stopped, he called it a "win-win" proposition for the team and the taxpayers — and himself. "Am I going to benefit off it financially? I hope so," he told reporters. "But I also hope that the $100 million that comes into Arlington will help Arlington schools and helps Arlington streets and police."
Today, five years later, there are real questions about whether those wonderful benefits have actually materialized for Arlington. Bush and his defenders point out that the city's tax revenues have increased significantly, so much so that the bonds used to finance the stadium will be paid off early. But Mark Rosentraub, a professor at Indiana University at Indianapolis and author of the book Major League Losers, says the Arlington boom wasn't caused by The Ballpark. "There have been no economic benefits from the stadium," Rosentraub says. "In fact, if you go to (north) Arlington and go to the area around the stadium, there has not been much that has happened. The economic success that people report is all the result of growth in south Arlington. There has been no growth in north Arlington."
But even if one assumes for the sake of argument that The Ballpark has been a big economic boost for Arlington, does that mean the taxpayers should have paid for it? Since it was intended for their own benefit, couldn't the owners have paid for it themselves — borrowed the money, built a stadium, and made a profit? It's a question the Bush campaign is not particularly eager to answer. Asked by The American Spectator, spokeswoman Karen Hughes responded, "The Ballpark is a great example of a public-private partnership that was a win-win relationship for everyone involved." When the question was repeated, the answer was repeated as well.
As popular as The Ballpark has become, there are still some opponents to the way it was financed. "It was a sweetheart deal," says Bill Eastland, a businessman and anti-tax activist who led the opposition to The Ballpark funding deal. (Eastland is also the brother of former American Spectator Publisher Terry Eastland.) "As the details came out, it became very clear that the Rangers were being given a ballpark completely paid for by the taxpayers." Adds Mark Rosentraub, "The issue is whether or not private enterprise ought to be subsidized to the extent to which The Ballpark was subsidized — and if that subsidy produces immense financial returns, to what extent the public ought to receive significant financial returns."
However one chooses to frame the issue, it is indisputable that The Ballpark had a huge impact on George W. Bush. Last year, he and his partners sold the Rangers to Dallas investor Tom Hicks for $250 million. Bush's part was worth $15 million (it may ultimately be even more, according to Hughes, because some profits still have not been distributed). It was, to say the least, a healthy profit on his original $606,000 investment. But why were the Rangers so much more valuable than they had been when Bush and his group bought them? Because of The Ballpark. "The team's value is attributable to the revenue streams of the new stadium," says Rosentraub. Bill Eastland says it more simply. "When Hicks comes along and buys the team, do you know what he's buying? He's buying the damn Ballpark."
THE $135 MILLION QUESTION
The details about Bush's business career, from the first investors to the stadium deal, will undoubtedly become the basis for questions in the coming campaign. After all, journalists will reason, given the intense scrutiny given to Bill Clinton's past financial dealings, shouldn't Bush face the same? That is, of course, a misreading of what happened to Clinton — other than the original Whitewater article in the New York Times, the investigation of his financial affairs came largely after he became president — but the distinction is likely to be lost in the political season.
Still, a healthy inquiry will be a good thing. Although each of these issues has been reported in the Texas press, there is undoubtedly still more to learn. And it will be useful to hear how Bush handles inquiries about whether he believes that any of the businessmen who offered him opportunities were also hoping for a friendly tie to his father.
It's not an idle question. If one superimposes a timeline over the Bush career path, one sees that his rise in business coincided with his father's rise to the highest levels of government. In late 1979 and 1980, for example, as the younger Bush was seeking investors for Arbusto, his father was running for the Republican nomination for president and, later, taking his place as Ronald Reagan's running mate. Many of the people who were investing with George W. were also contributing to his father's campaign, which may or may not mean they were trying to buy a little good will in the White House. The Uzielli investment, the Spectrum 7 deal, and the Harken merger all were accomplished while the elder Bush was vice president. And the Rangers sale went through very shortly after President Bush took office.
But it may be that — provided no evidence of wrongdoing emerges — there's little more to say than the obvious: Of course Bush benefited from his connections, but that's just the way the world works. Rather, the real problem for Bush — certainly with his fellow Republicans — may ultimately be not his family friends but the stadium deal. It will be hard for Bush to deny that he and the other owners happily accepted $135 million from the taxpayers for their private benefit. Would he as president favor similar large-scale federal "public-private partnerships" financed by the taxpayers? A sweet deal like The Ballpark comes once in a lifetime, but it leaves a front-runner with a lot of explaining to do. |
