Wayne Huizenga’s fascination with perception on Wall Street continued to fuel his desire to build Blockbuster into a diversified entertainment company. According to his biography, in June 1993, he met with advisors from Wall Street to discuss expanding into entertainment. The meeting resulted in a list of three potential partners: Viacom, Paramount, and Polygram Inc.

Over lunch, Wayne pitched Viacom’s Sumner Redstone on merging, but Redstone was busy trying to acquire Paramount. Viacom’s acquisition of Paramount meant that two targets on Wayne’s list would become one. Polygram was owned by Philips Electronics, which was restructuring and couldn’t entertain any deals.

Viacom announced its deal for Paramount, kicking off a bidding war between Redstone and QVC’s Barry Diller that gave Wayne an opportunity. As the price got higher, Redstone needed a partner. Wayne agreed to buy $600 million worth of preferred Viacom stock and receive a 5% dividend. Wayne did a stock offering at $30 per share to raise $424 million of the $600 million needed.

Diller bid higher, forcing Redstone to rework his proposal. Redstone needed someone willing to buy $1.2 billion worth of Viacom stock so he could use that cash to offer Paramount shareholders more cash in his cash-and-stock bid. Wayne agreed. He would buy $1.8 billion worth of Viacom stock, but with one condition: regardless of the outcome of the Paramount deal, Blockbuster and Paramount must merge.

The deal included a collar provision called a variable common right. If, on the first anniversary of the merger, Viacom shares were too low, Blockbuster shareholders would receive additional Viacom shares.

A lot of drama happened before the September breakup deadline. Wayne and Sumner’s relationship deteriorated. But the $8.4 billion deal was approved by Blockbuster shareholders and closed.

Wayne quit and owned a stake in Viacom worth $600 million. It was a bittersweet ending, but Wayne kept going. He didn’t need more money, but making money is still a challenge he enjoys. He summarized his thinking about this with this line: “Why do you climb the mountain? Because it’s there.”

In 1995, he and his friends invested $27 million for 6 million shares and warrants for another 12 million shares in Republic Waste Industries. Wayne personally invested another $13 million, and banks completed a private placement for $70 million. The stock went from $4 to $26 in months because of the “Huizenga effect.” Wayne was off to the races again with a new company and richly valued stock he could use to build a diversified services company!

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

Wayne Huizenga made Blockbuster Video's positive perception by Wall Street a priority. His biography details his success in doing this early. But business is never a straight line up and to the right. As business operations ebb and flow, so will perception.

In May 1989, Bear Sterns analyst Lee Seidler highlighted acquisitions-related accounting practices that he claimed inflated Blockbuster’s earnings and stock price. The inflated stock was used to acquire more businesses, further inflating earnings. Perception tanked, and the stock price took a hit. This marked the beginning of a rough patch for the company.

In 1991, the Gulf War began, and consumers watched the latest developments on CNN. Blockbuster reported growth of 31% that quarter, but Wall Street expected 40%. The stock tanked. The cable industry launched interactive cable with more channel options. Cox Enterprises, a major cable operator, announces its sale of eighty-two Blockbuster locations. Blockbuster had a confidence crisis, and some executives believed Wayne, not having the conviction of a founder, compounded the issue.

Desperate to change their perception, Wayne began diversifying. He struck a deal to buy a U.K. video rental chain, Cityvision. As part of that process, he convinced Phillips Electronics N.V. to invest $66m in Blockbuster, which provided the cash needed to close the Cityvision deal. Wayne hoped the vote of confidence by a $31 billion technology giant would squash Wall Street’s fears about technology risks.

Wayne went further by getting into music retailing. In 1992, Blockbuster spent $185 million in cash and stock to buy 236 Sound Warehouse and Music Plus stores from Roy E. Disney. That same year, he struck a deal with Richard Branson Virgin Music to open Virgin Music stores in the United States. Blockbuster went on to copy Virgin’s concept and open smaller Blockbuster Music stores, which didn’t go over well with Virgin and Branson.

That same year, Wayne met with an investment banker and Wall Street analyst to discuss Blockbuster entering the entertainment industry. In 1993, he purchased 35% of Republic Pictures Corp, its thousand-film library, and warrants for $25 million. Also in 1993, he purchased 48% of Aaron Spelling’s Spelling Entertainment and its hits, such as the Beverly Hills 90210 TV show and Terminator movies, for $140 million. Wayne combined the two publicly traded companies into one, of which Blockbuster owned 70%. He also bought 20% of Discovery Zone’s indoor playground business for $10 million in 1993.

Wayne used his dealmaking skills and transformed Blockbuster into an “all-around entertainment company.” Analysts took notice, and perception started to change. This, combined with positive and increasing cash flow, led institutions like State Street to buy and lift the stock price.

This increasing cash flow (and somewhat positive perception) would ultimately lead to the biggest deal of Wayne’s life.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

Reading Wayne Huizenga’s biography, I learned something unexpected: Blockbuster Video’s roots were in making software for oil and gas companies. David P Cook & Associates was founded in 1978. By 1983, when it went public and raised $8 million as Cook Data Services, it had employees in five offices and hundreds of oil company customers. Then the oil market tanked and customers stopped paying their bills. Founder David Cook sought ways to use the company’s barcode technology and settled on the exploding video rental business. Powered by software and a high-tech distribution center, he could build a superstore in an industry full of mom-and-pop entrepreneurs. The first store opened in 1985 and had more customers than it could serve.

So how did a garbage entrepreneur find a small, public company that was pivoting? Wayne, through Huizenga Holdings and wealthy friends, built a deal machine with great deal flow that they shared with each other. A friend came across Blockbuster and pulled Wayne in. Wayne visited a store and was hooked on the rental and service aspects of the business.

In 1987, Cook tried to raise money to grow Blockbuster, but a negative Barron’s article sunk his chances of selling $18 million worth of shares to public-market investors. He raised only $4 million. Wayne and his friends came to the rescue. They agreed to invest $18.5 million and receive 1.2 million shares, warrants to buy another 1.7 million shares, and 60% company ownership.

Wayne believed the company could be easily duplicated, so he focused on getting large quickly. In 1987, with just 19 stores, he acquired a large competitor with 29 stores. Cook, losing control and disliking acquisitions, quit, forcing Wayne to become CEO.

Wayne quickly realized this was an unfamiliar industry and hired seasoned executives to fill his gaps. This team would drive the hyperbolic growth he envisioned. Wayne preferred company-owned stores to franchising, but each store cost $500,000 to build. He planned to fund the growth by selling shares to public-market investors, but Blockbuster shares cratered by more than 50% during the October 1987 stock-market crash. Wayne hastily arranged for family and friends to invest $8.4 million via a private placement instead.

The company grew from 19 stores in 1986, to 133 stores in 1987, to 415 stores in 1988, to 1,079 stores in 1989. While Wayne’s lieutenants ran operations, he focused on acquisitions and on managing Wall Street analysts’ and institutional investors’ perceptions of the company. Positive perceptions led to a high multiple on the stock, his main currency in acquiring companies. Employees at all levels were partially compensated in stock options, which Wayne also used as motivation to run the company at a breakneck pace. The pace took a toll: one executive died of a heart attack and others divorced.

Wayne completed 110 deals in seven years. He needed a strategy to raise capital to fuel that growth, silence critics who said pay-per-view was a threat, and gain more credibility with Wall Street, and he devised one: he struck deals with Cox Enterprises and United Cable, two of the largest cable companies. Each invested $12 to $15 million initially and bought rights to open 100 stores. The companies perceived as big competitors were now Wayne’s investors and partners.

Wall Street embraced the company, which moved from trading on an over-the-counter (OTC) stock market to the NYSE in April 1989. The stock went from $5.75 to $33.50. Blockbuster was perceived positively . . . for the time being.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

Sumner Redstone’s autobiography detailed negotiations with Wayne Huizenga during Viacom’s acquisition of Blockbuster Video. I knew that Huizenga owned an NFL team, the Miami Dolphins, at one point, but not much else. I decided to read Gail DeGeorge’s The Making of a Blockbuster: How Wayne Huizenga Built a Sports and Entertainment Empire from Trash, Grit and Videotape.

Blockbuster wasn’t Huizenga’s only outsize success. During his career, he also took Waste Management, Republic Services, and AutoNation public. Each was valued at over a billion dollars. He also launched the NHL’s Florida Panthers and MLB’s Miami Marlins as expansion teams.

Wayne started off in the garbage business. His grandfather immigrated from Holland and ran a garbage business in Chicago. Wayne’s extended family would become garbage entrepreneurs too. Wayne’s father was the exception. He moved to Florida to build homes but went broke when the economy slowed. This scared Wayne.

After dropping out of college, Wayne borrowed money from his father-in-law in 1962 to buy trucks and routes to start his own company in Pompano Beach, Florida, at age 25. Wayne’s intense personality and work ethic, combined with an exploding population, grew his business from one truck to forty trucks and $3 million in revenue by 1969.

Wayne leveraged loans from banks and family to grow. After exhausting those options, he merged with the garbage company his cousin’s husband, Dean, ran in Chicago. Wayne was the deal person and Dean was the strategist and operator.

The combined company couldn’t borrow any more money, so they decided to take it public. In 1971, the company began trading on the over-the-counter (OTC) stock market. Wayne could then use the company’s stock, not cash, to acquire new companies. They acquired 133 companies in ten months in sunbelt states and suburbs. A key part of their strategy was to acquire companies that owned landfills, which created revenue from fees paid by competitors to use their site.

The acquisition pace was blistering. After a decade, revenues reached $772 million, and Wayne didn’t feel that his $23 million in stock and options was enough compensation for his efforts. He wanted more, so he left the company in 1984 and started what would become Huizenga Holdings.

His learnings from Waste Management were that service businesses and rental companies are ideal. Both have great cash flow and high levels of repeat business. This informed his investment thesis. Wayne bought most of a publicly traded lawn-care company, porta potty company, and bottled-water company, to name just a few.

Wayne leveraged his deal-making skills and always bought. He never started from scratch. Huizenga Holdings became a deal-flow machine. He cultivated a network of wealthy, deal-hungry individual investors who shared in the deal flow. Wayne’s early track record was mixed. A savings and loan he invested in was seized, and he lost over $1 million. But Huizenga Holdings would be the sourcing tool that helped him find investments early, including one of his most lucrative investments: Blockbuster Video.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

Because I’ve received feedback that others got value when I shared the struggles from my current personal project, I’ve decided to build this project in public and share my ups and downs openly.

Current Personal Project: Reading Books about Entrepreneurs and Sharing What I Learned from Them via Blog Posts and Audio Recordings Distributed as a Podcast

What I struggled with:

• Distillation – I shared my thoughts in this post a few days ago. Identifying the most valuable wisdom and formulating insights is the key to providing maximum value per minute to entrepreneurs who read my blog posts or listen to my audio recordings.
• Editing – Editing makes a recording concise, increasing the value per minute to the listener. Editing one recording per week—I’d be OK with that. Editing one recording a day was frustrating and required more time than I wanted to allocate to this task. It slowed me down in other areas of this project; specifically, distillation.

What I learned:

• I read the biography of Wayne Huizenga last week, and this week I’ll create blog posts and recordings about it. It helped to remove the pressure to write and record about what I read the same day I read it. It gives me more time to process and a buffer for the unexpected.
• Kirk Kerkorian’s journey as told in the biography was complex. Three blog posts or recordings wouldn’t have done it justice. Some books won’t fit into a three-part series, and that’s okay as long as I stay focused on providing as much value per minute as possible to entrepreneurs who read my blog or listening to my recordings.
• I’m now editing as the last task of the day. It’s mindless work. It doesn’t make sense to do it earlier, which wastes the time of the day when I’m mentally sharpest.

Those are my struggles and learnings from this week!

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

Weekly Update (a New Format): Week Two Hundred Twenty

This is my two-hundred-twentieth weekly reflection or update.

Three weeks ago, I changed my weekly reflection to a weekly update on a current project. For more on why I made this change, see here.

Current Personal Project: Reading Books about Entrepreneurs and Sharing What I Learned from Them via Blog Posts and Audio Recordings Distributed as a Podcast

Metrics (since 4/1/24):

• Total audio recordings published: 56 (+7)
• Total blog posts published: 76 (+7)
• Average recording: roughly 12 minutes (+0) for a biography or autobiography

What I completed this week:

• Read the biography of Wayne Huizenga
• Had three additional feedback sessions—I missed my target by two; it’s the third straight week I’ve missed this goal
• Compiled and sorted feedback from sessions completed the week of 6/3/24
• Began implementing Amazon affiliate links for books
• Partially edited one of the Jim Simons series using Descript—I missed my target by five

Content:

• Audio content changes: Tested doing five episodes for Kirk Kerkorian instead of three

What I’ll do next week:

• Read one biography or autobiography
• Write seven blog posts and record seven audio posts
• Compile feedback from sessions completed the week of 6/10/24 and identify insights
• Finish editing Jim Simons series using Descript
• Complete five feedback sessions
• Update links in podcast and blog with Amazon affiliate link
• Write a blog post explaining my decision to use Amazon affiliate links

Asks:

• Listen to my most recent audio recordings and provide feedback on how I can improve them

Week two hundred twenty was another week of learning. Looking forward to next week!

FYI: I’m still playing with the format for this weekly update. I’ll add and remove stuff until I settle on a format I like.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

My current project is reading books about entrepreneurs and sharing what I learned via blog posts and audio recordings I distribute via a podcast. I started in April, and as of now, the following are the major steps in my process:

• Read, notate, and highlight a book
• Distill my notes and highlights
• Write and publish a blog post
• Record an audio post
• Edit the audio recording
• Publish the recording via podcast

I did a survey (basically customer discovery) earlier this year and learned that many entrepreneurs don’t read physical books because reading doesn’t fit their hectic lifestyle. However, they want to learn, and they consume a large amount of audio while they’re multitasking. I figured I could read for them and share what I learned via audio.

When I started this project, I thought reading was the most important thing, given that most people weren’t doing it. I figured reading two hours or so a day would position me to share my learnings at an accelerated rate. The reading is important, but the last few weeks have highlighted something else.

Let’s say a 300-page book takes someone 10 to 12 hours to read. I could easily share everything in the book in a two-hour recording. But entrepreneurs won’t listen for two hours, even knowing it would take them much longer to read the book.

The value per minute spent listening to a two-hour recording about a book is higher than that of reading the book. But it’s not high enough. Entrepreneurs want maximum value per minute of their time if they give you their attention. I suspect they want a value per minute that’s 15x to 20x that of reading a book.

Now that I understand this, I see the distillation process as a key step in my project. Identifying the most valuable wisdom from books and formulating insights are key to providing maximum value per minute.

It’s easier said than done. This past week, I began testing approaches to distilling what I’ve read. I’m still not where I want to be, and I’m going to keep trying to improve. My goal is for people who listen to one of my recordings to feel that the value they receive significantly exceeds their time cost. I think that indications of this are people thinking deeply about something in the recording or being motivated to keep persevering on their journey, whatever it may be.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

I finished reading Kirk Kerkorian’s biography. His journey and what he managed to accomplish are inspiring. When I started this book, I wanted the answers to a few questions:

Why did Kirk become so successful?

Kirk Kerkorian was a learning machine. His formal education ended in eighth grade, but he learned to be a pilot, an aviation entrepreneur, a public market investor, a casino entrepreneur, and a mergers and acquisitions maven. He had a thirst for knowledge around topics that excited him.

Kirk started out trying to make enough money to survive. But after that box was checked, he began thinking bigger. He became an entrepreneur with a vision. He fell in love with Las Vegas in the 1940s and saw what the city could become: an entertainment and leisure travel mecca, an adult Disneyland. His vision led to decades of pursuing projects in Las Vegas that set records and were massive successes. Each moved him closer to turning Vegas into the place he envisioned. Many successful entrepreneurs have mercenary motivations in the beginning, but those who have outsize success are visionaries. Kirk was one of the rare founders who successfully shifted his thinking from one to the other.

Some entrepreneurs are builders. They love turning nothing into something and going from zero to one. Others enjoy optimizing existing companies and taking them from one to ten. Kirk was unusual in that he was good at both. He built massive casinos from the ground up. But he also bought private and public companies outright and optimized them.

Kirk became a shrewd investor. He bought and sold public and private companies. People are usually skilled investors or skilled entrepreneurs, not both. The rare ones who excel at both often realize outsize success. Warren Buffett famously said, "I am a better investor because I am a businessman and a better businessman because I am an investor.” That holds true for Kirk too.

What kind of entrepreneur was Kirk?

Kirk was fair. He didn’t believe in zero-sum games and was adamant that both parties win. He even returned subordinates to the negotiation table after the deals they cut were too favorable to him.

Kirk always kept his cool in the direst of circumstances. He loved the thrill and embraced risk in a major way. He once bet $1 million on a single roll of the dice in the French Rivera. And won! As a pilot, he almost died serval times.

Kirk was grounded. He hated public attention and refused to give speeches or do interviews. He liked that he could go anywhere and no one knew him. The freedom to go anywhere and do anything without being disturbed was priceless to him. As a billionaire, he wore a Timex watch, drove himself around Los Angeles in a Ford Taurus, and lived in a 1,800-square-foot home.

He wasn’t perfect by any means. The book highlights his flaws and gives detailed accounts of some crazy stories from his personal and professional life.

What can entrepreneurs learn from Kirk?

Continuous learning is key to outsize entrepreneurial success. The more you learn and the faster you learn (and figure out how to apply what you learn), the more you increase your chances of success. Wisdom compounds, and you can win by learning faster than everyone else.

You can’t control your starting position in life, but you can control your personal velocity and distance traveled. If you were dealt a bad starting position, get comfortable with the idea of needing to move faster and travel further to end up in the same place as others. It’s not fair, but neither is life. If you want to surpass others, like Kirk did, move even faster and travel even further.

Control matters. Understand the situations in which you could lose control of your company and try to eliminate them.

Last, keep doing what you enjoy. Kirk was still playing tennis and building record-setting development projects in his eighties!

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

While Kirk Kerkorian was becoming a public market investor and developing casinos, he got into another industry: movie studios. Per his biography, Kirk launched a tender offer to take control of publicly traded MGM Studios in 1969. Kirk saw hidden value in its library of classic films and its brand. The company also owned real estate, a music publisher, a record label, and overseas studios.

He raised $70 million in two days from a consortium of European banks. His tender was successful. He owned nearly 40% of MGM’s stock.  The company was in “financial shambles.” Kirk slashed costs, sold real estate and other assets, and canceled upcoming movies.

By 1971, the company had stabilized, and Kirk began looking for a way to generate reliable and growing revenue. His idea was to diversify. He’d just sold off his remaining stake in International Hotel (by then renamed Hilton Las Vegas). He wanted to combine the entertainment and casino businesses to create the MGM Grand Hotel and Casino. Kirk envisioned twenty-six floors and two thousand rooms. It was the second time Kirk would build the biggest hotel in Vegas. MGM borrowed $75 million, and the project began.

In 1973, MGM Grand opened and exceeded expectations. Its success led to MGM’s highest annual earnings in its fifty-year history. Kirk doubled down, increasing his ownership in MGM to 50.1%.

Kirk took MGM to Reno and spent $115 million building the MGM Reno. He bought a Lake Tahoe casino for $2 million to train workers until the Reno project was completed.

Amid all this, he tried to buy a controlling stake in publicly traded Columbia Pictures in 1978. He failed, but he made a profit of $75 million when Columbia bought back his shares at a significant premium.

In 1980, Kirk split MGM into a film company and a hotel company. He owned roughly half of each publicly traded company. He also bought United Artists for $380 million in 1981 and combined it with the film studio to form MGM/UA.

By 1986, he sold MGM’s film company to Ted Turner, although he would repurchase much of it months later when the debt load crushed Turner. That same year he lost interest in the MGM Grand hotels in Vegas and Reno and sold them to Bally’s Corporation for $550 million.

Kirk didn’t stop there.

He sold MGM/UA for $1.3 billion in 1990, bought it back for $870 million in 1996, and sold it again to Sony for $3.5 billion in 2004.

He built a bigger MGM Grand for $1 billion, which opened in 1993 and became known for hosting famous boxing matches. He bought Mirage Resorts from Steve Wynn in 2000 for $4.4 billion. And in his nineties, just before the Great Financial Crisis, he embarked on his biggest Las Vegas project, CityCenter.

Sometime in the 1960s, Kirk evolved from a small-thinking, mercenary entrepreneur to a big-picture, visionary entrepreneur. He saw Las Vegas as his blank canvas and the ultimate place for entertainment and leisure travel—an adult Disneyland. He spent the next forty-plus years turning that vision into reality and making Las Vegas the city we know today. That he turned a movie studio brand into a hotel brand that’s still thriving today is a testament to his vision and abilities as an entrepreneur.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

As Kirk Kerkorian transitioned from aviation entrepreneur to investor, he also got into real estate development. Per his biography, he took $960,000 from the sale of Trans International Airlines in 1962 and bought eighty acres in Las Vegas. In 1963, a developer leased the land to build Caesars Palace. Kirk would get lease payments and 15% of casino profits.

Caesars Palace educated Kirk on casino development. He made plans to build his own hotel and casino. The International Hotel would have 1,000 rooms and be the world’s largest. He paid $5 million for sixty-five acres and another $12.5 million to buy the Flamingo Hotel so he could train staff while his hotel was being built.

The Flamingo was built by Bugsy Siegel in the 1940s and had been run by the mafia since then. It reported profits of less than $500,000 annually. In its first year under Kirk’s ownership, it made $3 million, more than Kirk’s $1 million projection. This increase in profits would be a double-edged sword.

Kirk wanted to focus on his project, so he sold the land underneath Caesars Place for $5 million, returning $9 million total on his five-year investment.

Kirk was thinking big. He believed leisure travel was on the verge of exploding. He bought the bankrupt Bonanza Hotel and Casino and the second mortgage on Circus Circus resort and created the International Leisure Corporation (ILC) to own them and the Flamingo and International Hotels.

In 1969, he took ILC public and raised $26 million. Later that year, the International Hotel, which cost $60 million to build, opened and was wildly successful. With two successful hotels and casinos, ILC’s stock rose. Kirk’s eighty-two percent ownership was worth $180 million.

ILC had $50 million in debt, which Kirk planned to pay off by issuing more ILC stock. Unfortunately, the SEC wouldn’t let him because it questioned the recordkeeping at the Flamingo before Kirk bought it. Simultaneously, a bear market hit stocks. ILC’s stock dropped 90%, from $65 to $6.50. Kirk needed to raise cash. He sold his yacht, private plane, and roughly half of his ILC stock. His stock had been worth $180 million months earlier, but Hilton Hotels bought half of Kirk’s position for $19.4 million. Hilton owned 50% of ILC, for which it paid only $21.4 million. Leverage forced Kirk to sell at the worst possible time and lose control.

Kirk hated having partners. By 1970 Hilton was renaming the International Hotel as the Hilton Las Vegas. This, combined with wanting to pay off other debts, led to Kirk selling his remaining ILC shares. He was no longer in control of what he’d built and was out of the casino business for the time being. Things weren’t all bad. He made a roughly $30 million profit after ILC’s stock sales and dividends were factored in.

“I have no regrets,” Kirk said. But he learned valuable lessons: first, that ownership and control mattered in the companies he created, and second, that he, like his father, was susceptible to being crushed by financial leverage at the worst possible time.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!