Chapter 7: The Return of the King
Excerpt from The Visionary and the Vizier, Jim Henson and Frank Wells at Disney, by Derek N. Dedominos, MBA.
In June of 1995 Ron Miller retired as CEO and handed his seat on the board to the returning Frank Wells, whom the board unanimously and without much debate granted the title of CEO. Henson offered Wells back his position as Chairman, but Wells and the board refused, instead making Henson’s and Dick Nunis’s acting positions permanent.
The Vizier was now officially the King and the Visionary now officially the Prince Coregent. Their first official act was to organize a retirement party for the departing Miller.
Henson organized Miller’s two retirement parties: the first a small, stately affair for the top executives and their families at Miller’s favorite country club, and the second a rollicking Masked Ball at the Disney-MGM Studios campus in Burbank for the whole company. This latter affair sprawled across several sound stages and included a Muppets reenactment of Miller’s career from Pro Football player (reenacting the scene where he gets brutally tackled and Walt recruits him to Disney) through his career at Disney with all of the ups and downs, all done with an affectionate mix of sincere love and comedic irony.
“It made Card’s retirement look boring,” recalled Director Emeritus Philip Hawley.
All remembered the time as one of sincere joy, with Miller getting accolades and some friendly roasts alike. All were happy to see Frank Wells return from his “dalliances” in Washington and Nepal, and all knew that he’d be an excellent CEO. Miller would retire fully to his Chateau in Napa, devoting his time to growing his wine empire with Francis Ford Coppola and working to restore the glory of his old LA Rams. He’d remain on the “Advisory Board” as a CEO Emeritus and his wife Diane Disney Miller would retain her seat on the board with Dick Nunis as their “second” seat. And Wells, despite his friendship with Stanley Gold, was increasingly seen along with Kinsey and Henson as a neutral fair arbiter.
And Henson, unanimously elected permanent Chairman, formally took over the job that he’d been doing for the last two and a half years. It was a particularly challenging time to be Chairman of Disney. The country was still reeling after the deadly bombing of FBI Headquarters in Washington, DC, and related attacks. The FBI warned them that Disney itself was among the targets under discussion on far-right message boards and in underground publications, though no formal intelligence suggested an imminent attack. Henson himself was listed as a potential “high value target” for violence or kidnapping given the literal demonization of him by conservative televangelists like Jerry Falwell and Pat Robertson. As such, his relatively carefree off-duty activities, which included walking the streets and beaches alone, would be drastically curtailed, he’d be moved from his beach house in Laguna into the Caesar Suite of the Villa Romana hotel at Disneyland, and he’d be assigned 24/7 protection, in particular a towering, broad-shouldered former Secret Service agent named “Sonny”. Similar protections were afforded to other Disney executives.
Disney animator’s depiction of “Sonny” (Image source MTV)
In addition to their own personal safety and security, he and Wells implemented a major security audit for all of the parks and hotels down to the smallest Disneytown. They continued discussions with the FBI and looked for ways to improve security without sacrificing guest experience. From big things like finding ways to attractively disguise metal detectors at the gates to small things like choosing “friendly” breeds like Labrador and Golden Retrievers rather than intimidating ones like German Shepherds for the K9 teams, they worked with the Imagineers to apply the “Disney Difference” to security and public safety.
And with all of this happening in the background, Henson’s very first job as permanent Chairman was to sell the board on Ron Miller’s controversial deal with Georgia Frontiere for acquiring a stake in the LA Rams.
That March Miller had arranged a tentative deal where Disney would support construction of a new stadium in Anaheim specifically for the Rams, with total costs projected to be between $250-$300 million, as their current stadium, the Angels Arena, which they shared with the MLB team, was deemed unsuitable for football. In the meantime, the Rams would move back to the LA Colosseum (which had been abandoned by the Raiders upon their return to Oakland) with an agreement that Disney would help market the team to drum up attendance. In return for all this, Disney would claim a 35% stake in the team with a seat on the Rams board and the full rights to use the Rams name and trademarks in merchandise. They’d also have the right of first refusal on the acquisition of additional shares[1].
In all, it wasn’t a bad deal, though three big issues loomed over everything: revenue potential, NFL ownership limitations, and NFL merchandising rules. The first big issue was that the LA Rams in 1995 were a losing team with a shrinking fanbase. Miller made the point that with the Raiders now back in Oakland that they’d have a local monopoly. He pointed to Disney’s success with the Avengers and Angels. Even so, it was a far bigger acquisition than the two smaller teams, and the fact that Miller used to play for the Rams gave it the appearance of something done for his own ego rather than done in the best interests of the shareholders of the Walt Disney Entertainment Company. This last aspect made selling the idea to the board much more complicated.
The second issue, and one which nearly sunk any deal, was that NFL bylaws specifically prevented corporate ownership of an NFL franchise[2]. In fact, ownership of any NFL team was limited to a maximum of 25 total “owners”, the largest of whom must own at least 30% as the “main” owner with full and unlimited executive control of the team. This last part not only gave the main owner the power to relocate or drastically change the team at their own discretion, but it prevented public ownership or public trade of shares in an NFL franchise, the sole exception being the Green Bay Packers, who had a pre-NFL grandfather clause that allowed public ownership, with the fans themselves being the principal stakeholders. Notably for what was to come, this last part, that the fans themselves were blocked from ownership or any say in the fate of their team, and that they could lose their home team at the whim of capricious owners, stuck in Henson’s craw.
Henson himself had no major opinion on the Rams deal itself. It seemed like a bit of a strategic risk, but so was the decision to create the Anaheim Avengers and the decision to launch Port Disney and Disneyland Valencia. Or his personal decision to make a play for Disney to begin with back in 1980. Risk was a part of the job. He had no personal love or hate for the deal, but he now felt compelled to use the deal to right an injustice as he saw it. He’d soon get an opportunity to do just that.
The third issue, which greatly complicated Miller’s case, was that the NFL centrally managed all merchandise. All NFL merchandise and corporate partnership deals were arranged across all teams by the NFL Trust, and the proceeds then distributed more-or-less equally among the teams. It was an arrangement that in theory protected the small teams and prevented price wars between them, but which removed one of Miller’s principle selling points for the deal: the potential profits for Disney-specific merchandising, which was the real cash cow for the Angels and Avengers.
Roy Disney, who once again leaned on his friend and financial advisor, the cantankerous Stanley Gold, to speak for him, openly opposed the deal. “It’s a bad deal, it’s a shitty team, and we can’t even control merch!” Gold was fond of saying. Since Miller’s announcement of the tentative deal (pending board approval) that March, Gold had loudly argued against it, presumably speaking for Disney, who remained quiet as usual. Even before Wells returned, Henson was working to bridge the divide between Miller and Disney on the issue, but Disney remained firm in his opposition to the buy. “Two sports teams is enough, Jim,” Disney told Henson.
By early 1995 the Disney buy was an apparent non-starter (the NFL refused to budge on its corporate ownership rules) and Frontier started talking to Stan Kronke about a similar deal to the one offered to Disney, one which would see the team move to St. Louis, leaving the LA Metro area without an NFL team for the first time in decades. At first Miller was left defeated, and Roy Disney rather smug about the deal evaporating. But then Miller proposed a different approach: what if he, or, more specifically, the Disney-Miller Family via Retlaw Enterprises, became the owner? Disney could finance, manage, and take principal ownership over the new stadium (no rules prevented corporate ownership of a stadium) and in exchange make special merchandising and cross-promotional deals with the Rams. However, Miller didn’t have the cash personally and the rest of the Disney family and Retlaw trustees were resistant to what looked like a trophy asset requiring a questionable and risky leverage buy. They determined that they could at most risk leveraging Disney stock to back a loan of around $30 million, far less than the over $100 million Frontier wanted. This avenue too looked like a dead end.
Steinberg on a call with Miller (Image source New York Times)
But then “super-agent” Leigh Steinberg started the Save our Rams campaign, ultimately organizing a group of 125 businessmen with a combined $60 million raised[3]. With or without Disney support on the stadium, Ron and Steinberg’s group agreed to join forces. However, with the assumed debt, Ron now needed the Rams to make a profit to cover the interest on those debts, and so he really needed that new stadium, and that required Disney to step in. Miller, increasingly a “Lame Duck” CEO whose influence was waning with his recently announced retirement, pushed hard for the deal, and Henson, though not particularly enthused by the deal, stuck by Miller largely out of loyalty. But the deal hinged on the board seeing the stadium itself (a $250-300 million proposal) as a valuable asset, which was a tough sell with most stadiums having very marginal returns even when used for venues beyond sports.
The board was at an impasse. The Disney-Millers and Hensons supported the deal, the Disneys opposed it, and the rest were divided.
But then a new complication arose: Miller and Steinberg were being outbid by Kronke. They needed another at least $15-20 million and the Disney board wasn’t about to loan Ron the money for a variety of fiscal and ethical reasons. Jim briefly considered joining in, but then another option surfaced, one which would give him the opportunity to strike back at what he saw as an inherently unjust rule on fan ownership.
"I've been informed that there may be another option..." (Image source disney.fandom.com)
This happened when Disney’s Legal Weasels brought to the board’s attention the recent case of Sullivan v. NFL. In 1991 Billy Sullivan, facing financial woes, tried to sell 50% of the New England Patriots by Initial Public Offering, which was a complete breach of NFL rules, and thus blocked by the NFL. He ended up selling his shares to another individual for less than they were arguably worth, but then sued the NFL under antitrust grounds because he would hypothetically have gotten a fair market price at IPO. He lost the first case, but appealed in 1994, accusing the NFL of breaching the Sherman Antitrust Act through the ban on share sales or shareholder ownership. The appeals court agreed, but they tossed the case back for retrial due to various technical and procedural issues, so the antitrust ruling was never binding. Sullivan and the NFL settled, with the NFL paying $116 million out of court, fearing the broader implications should they lose the antitrust case.
This antitrust cause was further bolstered when Jerry Jones, owner of the Dallas Cowboys, was getting increasingly disgruntled with NFL rules on merchandise. Sullivan v. NFL fresh in his memory, he launched a lawsuit challenging the centralized merchandising model used by the NFL on antitrust grounds. During discovery, the Cowboys were able to demonstrate that, through stadium programs and other means, that the rest of the teams in the league were doing the same thing as Dallas: selling merchandise independent of the NFL Trust[4], just at a smaller scale.
And Jim Henson, now proving to be as much of a business visionary as a creative one, hatched a plan that would not only rescue the deal and the LA team, but change the NFL forever.
While trying to sell Disney on the idea of going in on the stadium deal, Henson remembered the Knights Errant campaign, which helped “save” Disney from the Kingdom Acquisitions group. Noting that there were roughly 40,000 attendees to any given Rams game in 1994 – and if you were watching the Rams in 1994, then you truly were a die-hard fan, because they were at rock bottom – Henson realized that if they all put up on average $500 (a reasonable amount in his mind when Rams individual ticket prices started at $60) that would be another $20 million. They could sell 400,000 shares in a trust for $50 each, with growing perks for each “level” of share buys and special giveaways. More importantly to the egalitarian Henson, it also gave the fans a significant stake in the team and a voice to stop any future move from happening—and the implicit threat to dump their shares should the team ever move. Henson, though not really a football fan, personally launched the “Rams Fans to the Rescue” campaign, putting in a $2 million seed pledge himself and finding the LA Fans, who were immensely upset at the proposed St. Louis deal, very receptive, quickly netting the $20 million goal and in the end having to turn away funds.
This plan, however, would require a legal challenge to the NFL over the public ownership clause, but while they were at it, they could force the issue on merchandising, using the threat of joining the Jerry Jones lawsuit as leverage.
The NFL was thus presented with a choice: either give the Rams (and by extension anyone else who asks for it) the same sort of deal the Green Bay Packers have in terms of allowing multiple owners and shareholders, and relax the merchandising laws, or fight an antitrust case that the Sullivan case demonstrated that they would likely lose. The merchandising deal remained a sticking point, but the Disney Legal Weasels demonstrated up front that the rules weren’t being followed anyway and that the Rams’ proposed new partnership with Disney on merchandise was equivalent to everyone else’s, just higher profile.
Fearing twin-lawsuits from Jones and Disney, the NFL at first offered a compromise deal on a merchandise-sharing arrangement between the NFL and Disney. The Disney board was at first very open to the deal, but Henson, backed by a very promising analysis by the Legal Weasels, insisted on rejecting the deal and pushing further. Stanley Gold was incensed at this “dangerous gamble” and even more incensed that Jim Henson was the largest personal stakeholder in the Rams Fans Trust, which like the Retlaw involvement looked increasingly to him like Miller and Henson abusing their positions in order to enrich themselves. He, speaking for Roy Disney and Peter Dailey, pushed hard for Disney to take the deal, but Miller and Henson, backed by Frank Wells (which Gold saw as a small betrayal by his old friend), managed to get the board to reject the deal. Henson’s stubbornness was soon vindicated when the NFL settled early, fearing that the court case would drag on with increasing risk to them of a broad antitrust judgement[5]. They also conceded that the Disney proposal still met the spirit of the NFL rules: there would be one main owner who had executive control (Frontiere), the Save our Rams and Rams Fans Trusts could technically each count as a single “owner” since the investors technically owned shares of the Trust, not the team directly (though for all legal intents and purposes they were effectively shares of the team), and the NFL would retain the right to veto any transfer of ownership.
The final deal saw Frontiere offered $110 million for 55% of the team: 30% to the Save our Rams Group (represented by Steinberg), 25% to Retlaw (represented by Ron Miller), and 10% to the Ram Fans Trust[6] (represented at first by Henson, but soon replaced by an elected fan representative). Frontier would officially stay the “Main Owner” for NFL purposes as the largest single shareholder with 45%, but the rest, working together, could stop any undesirable plans, such as a move.
But Miller and Henson still had to sell the stadium deal to the board, with all agreeing that the formal vote should wait until Wells formally assumed his duties as CEO. Roy Disney remained in open opposition, his dislike for the deal exacerbated by the fact that the hated Retlaw would be the actual part-owner of a team that stood to directly benefit from the new Disney built, owned, and operated stadium. But the stadium deal, which held guaranteed revenues from ticket prices, parking, concessions, and on-site merchandise, was an easier sell than the team itself for most of the board, particularly as Disney could then use the stadium for Disney-run events from concerts to sports camps to special events or rent it out to third parties. And on top of that, the ability for Disney to manage their own merchandise and make independent merchandising deals with only a rubber-stamp concurrence from the NFL Trust, offered even greater profits. Disney even approached other NFL teams about special limited edition Disney merch with their team’s logos for when the team came to play the Rams. Similar deals would be forged for the NHL and MLB for teams playing the Avengers and Angels.
While still Acting Chairman, Henson spent quite a lot of his time and energy between March and May lobbying the directors in favor of the stadium deal and working with the Legal Weasels as the discussions with the NFL and Frontiere and the City of Anaheim continued. Henson, backed by COO Stan Kinsey, had little luck in swaying Roy Disney, but had better luck with the other directors. Bill Marriott, seeing the games and events as an opportunity to drum-up hotel occupancy in Anaheim, where they had a substantial share of hotel space both with Disney and on their own, supported the deal, and urged his representative on the board, Al Checchi, to support it. Sid Bass, through his representative director Charles Cobb, waivered at first before ultimately getting behind the deal, in part because of Bass’s love of football, which he called the “national sport of Texas”.
“It’ll give me a team to root for besides the Cowboys and whoever is playing the Redskins,” Bass joked.
Miller, with the force of his enthusiasm, wore down most of the board with Jim Henson’s help, and in May 1995 Miller and Frontriere formally announced the deal for Retlaw’s investment in the Rams and Disney’s plans to build the new Anaheim Stadium adjacent to the Angels’ Arena in partnership with the City of Anaheim. This was followed shortly by an announcement that Disney would take a 25% share of the Angels as well as direct management over the team. And with growing stakes in sports teams, sports resorts, and sports-related items, and even a Disney Good Sports channel on Basic Cable, Disney formally spun up a Disney Good Sports Department as a “finger” of Disney Resorts & Recreation.
The whole situation, in particular the role played by super-agent Leigh Steinberg, would even inspire a Hyperion film directed by Cameron Crowe[7].
In the end, Miller, Henson, and Kinsey managed to win over both Bass Brothers and Marriott (the former due to an innate “love of the game” and the latter due to the obvious synergy with hotels) and thus had the critical mass of directors. But two directors still openly opposed the deal: Roy E. Disney and his brother-in-law and “second seat” Peter Dailey. Gold continued to openly agitate against the deal, which he saw as a Ron Miller ego trip and flagrant conflict of interest given the Retlaw connection. Despite the strong urging by Henson and new CEO Frank Wells to vote unanimously in favor of the deal in a show of unity, both Disney and Dailey voted “no” when it came up for a vote on June 14th, Henson’s first official day as Disney Chairman, not just Acting. The deal passed on a vote of 8-2.
The “dissention on the board” for such a major deal sent shockwaves through Wall Street which, combined with pessimism over the potential of the Rams themselves, sent Disney stocks slightly lower in volatile trading. Worse yet, Roy’s intransigence made clear that, despite the best efforts of Jim Henson to play peacemaker over the last decade, a serious rift remained between the Walt and Roy sides of the Disney family.
It was hardly an auspicious beginning to Henson’s official reign as Chairman.
[1] A similar deal was made with Stan Kronke in our timeline to move the Rams to St. Louis. In this timeline the St. Louis Stallions will spin up as an expansion team. And a big helmet-tip to
@El Pip and
@jpj1421 for the research and planning of this crazy subplot and all that follows.
[2] This clause
sunk an attempt in 1996 in our timeline by Disney and MCA/Universal to bring an NFL team to LA.
[3] Per our timeline, where it was not successful in preventing the Rams from moving to St. Louis.
[4] The Sullivan case and Jones lawsuit are both per our timeline.
[5] Similar concerns drove them to quickly settle with Frontiere in our timeline over the St. Louis deal.
[6] The Rams Fans is treated as a Trust of sorts: fans can sell their share of ownership of the Trust to other people and the dividends paid out to Rams shareholders will go to the Trust first and then distributed out proportionally to the Fan shareholders, because the legal situation is that they don't
technically own any of the Team, they just own a Trust that owns 10% of the Team (a legal fiction that keeps the NFL sort of happy that their rules weren't completely broken). However, if the Fans Trust itself wants to sell its stake in the team (or buy more) then the NFL get a veto on it like any other ownership stake. That said, if the fans were to sell off their stakes in the Trust
en masse, that could seriously affect the Rams market value through indirect reductions to share price, giving them a potent weapon to oppose any strategy that they didn’t like, such as a team move.
[7] In our timeline this became
Jerry Maguire starring Tom Cruise.
