An Open Letter to Chicago Magazine

In the December issue, Chicago Magazine published a letter (pp. 13-14) signed by the Vice President of Communications with the Chicago White Sox, Scott Reifert.

Mr. Reifert's letter was in response to Dirk Johnson's fine article "Press Boxing" (October), a profile of the Chicago Sun-Times's sports columnist, Jay Mariotti, during his recent Summer of Love around Chicago.

In his letter, Mr. Reifert continued his boss's vendetta against Mr. Mariotti.

"We feel pretty confident most of the public sees through Mr. Mariotti's arrogance and bluster," Mr. Reifert wrote. "Too bad Mr. Johnson did not."

We, however, believe that actions speak louder than words. And insofar as the vices of arrogance and bluster (and worse) are concerned, Mr. Mariotti's words do not remotely compare to Mr. Reinsdorf's actions--including "merciless bullying" and "intimidation tactics" betraying a "level of avarice" and "unrelenting arrogance" that Ralph Nader once called "simply offensive." (Open Letter to Allan H. Selig and Jerry Reinsdorf, December 17, 2004.)

Mr. Mariotti is a writer, after all. Mr. Reifert's boss, on the other hand, is a mover and a shaker--and in this role, ranks among the chief financial predators of Sports USA. “The Toughest #&?!%* in Sports” (Business Week, June 15, 1992).

For the sake of the record, then, we highly recommend the following audiolink: "Jerry Reinsdorf on Ozzie vs. Mariotti" (Un-Cut, WBBM Radio, June 22, 2006). It was recorded last summer, during the period when the White Sox' manager was calling Mr. Mariotti a "fag."

Perhaps Chicago Magazine might even do us the favor of forwarding this audiolink along to Dirk Johnson?

Thanks. And take care.


Respectfully Yours,

"Ways Of Doing Things" -- A collective dedicated to keeping fans focused on the worst financial predators running--and ruining--Sports USA.

“The Toughest #&?!%* in Sports”

“Ways Of Doing Things” is pleased to follow-up its inaugural post on the chief financial predators of Sports USA with a reprint of Business Week’s June, 1992 examination of the owner of the Chicago White Sox and Chicago Bulls, Jerry Reinsdorf. Some things have changed during the 14 years since David Greising’s “The Toughest #&?!%* in Sports” first appeared. And some things haven’t. These days, for example, Jerry Reinsdorf wields his greatest clout within the domain of Sports USA as the Chairman of Major League Baseball’s Relocation Committee—a Committee that Ralph Nader once accused of employing “merciless bullying” tactics against the District of Columbia, in its effort to extort yet another “corporate welfare stadium deal,” this time for the Washington Nationals. “No longer surprised by your level of avarice,” the Nader-League of Fans letter continued, “we must express amazement at your unrelenting arrogance.” With Jerry Reinsdorf clutching the reins of the Relocation Committee, MLB has turned into nothing more than “corporate freeloaders on the taxpayers”—a practice Reinsdorf pioneered at the New Comiskey Park (now renamed U.S. Cellular $$$$$) back in 1988. What never changes, of course, is the rule of avarice over Sports USA. Enough said. Enjoy.


Lester Munson, “Ways Of Doing Things,” National Sports Daily, December 4, 1990
David Greising, “The Toughest #&?!%* in Sports,” Business Week, June 15, 1992
Ralph Nader and Shawn McCarthy, Open Letter to Allan H. Selig and Jerry Reinsdorf, December 17, 2004


The Toughest #&?!%* in Sports

In just over a decade, Jerry Reinsdorf has become a major power in two major leagues

David Greising, Business Week
June 15, 1992


WHERE REINSDORF WIELDS HIS CLOUT

Along with owning the Chicago White Sox, Jerry Reinsdorf sits on Major League councils that make decisions affecting every owner, player, and fan. Here's his portfolio of committee assignments

OWNERSHIP COMMITTEE: Reinsdorf is closely involved in the talks over Nintendo's proposed acquisition of the Seattle Mariners. Favors local ownership but doesn't rule out a nonvoting stake for Nintendo's U.S. unit

PLAYER RELATIONS COMMITTEE: As a member of the group that sets the owners' labor policy, Reinsdorf is pushing ''revenue participation,'' modeled on the NBA's salary-cap formula. And Reinsdorf promoted the hiring of Richard Ravitch as the owners' chief negotiator

SEARCH COMMITTEE FOR NEW AMERICAN LEAGUE PRESIDENT: When American League President Bobby Brown steps down after the 1993 season, Reinsdorf and five other owners will recommend a replacement

EXECUTIVE COUNCIL: The council's owners have a big say in league policy. During Reinsdorf's tenure, the council clashed often with the commissioner


When it came time to talk peace with the NBA, Chicago Bulls owner Jerry M. Reinsdorf had just the spot: his box at Comiskey Park, home to his other pro franchise, the Chicago White Sox. There, in mid-May, Reinsdorf and National Basketball Assn. Commissioner David J. Stern discussed their court battle over Bulls broadcasts on superstation WGN-TV. But Reinsdorf couldn't keep his mind off the game. Charlie Hough, Chicago's 44-year-old knuckleballer, after retiring the first two batters, walked five in a row. ''My God,'' said Reinsdorf, as the fifth batter to win a free pass trotted to first. ''That knuckleball has a mind of its own.''

'ON A ROLL.' So does Jerry Reinsdorf. In just over a decade, Reinsdorf has become a major power in two major leagues. He has turned the White Sox and the Bulls into a couple of the best franchises in the industry. He has fought and bested his fellow NBA owners in court over superstation broadcasts that have given the Bulls a national following. He has built a new Comiskey Park, squeezing fat concessions from local government. He has instituted a pay system at the White Sox that helps keep his baseball players' salaries in the park. He is building a new Chicago Stadium with Japanese financing. He may be maneuvering to replace the commissioner of Major League Baseball. And with his Bulls defending their NBA title against the Portland Trail Blazers, Reinsdorf isn't bragging when he draws on a thick Davidoff cigar and says: ''I'm on a roll.''

Challenging the rules of the old-boy clubs that run big-time sports hasn't made Reinsdorf many friends, but it may have made him something else: the sports owner of the future. He is an executive whose only business is sports, not a sport who is an executive in some other business.

Reinsdorf won't win any popularity contests -- but then he doesn't want to. He just wants to win. And he does, on the court, on the diamond, and in the counting-house. Last year, the Bulls' revenues grew at least 25%, to $ 34.3 million, and profits jumped at least 14%, to $ 10.9 million, according to court papers. The White Sox, which in 1991 drew 2.93 million fans to the new Comiskey Park, netted some $ 18 million. Says New York Yankees principal owner George M. Steinbrenner: ''Jerry Reinsdorf is running two of the best teams in professional sports. He's taken them from nowhere to the top or near the top.''

The 56-year-old Reinsdorf himself came out of nowhere. The Brooklyn-born son of a peddler of used sewing machines, Reinsdorf went to work as an Internal Revenue Service lawyer in 1960 after graduating from Northwestern law school. His first case: a tax delinquency by Bill Veeck, then owner of the White Sox. Reinsdorf left the IRS in 1964 to go into private practice. When several clients asked about tax shelters, he suggested real estate partnerships put together by a former Northwestern classmate, Neil G. Bluhm. At the time, Bluhm was founding what would become JMB Realty Corp., today one of the world's largest real estate firms.

BIG BUCKS. While still working full-time as a lawyer, Reinsdorf sold JMB partnerships. In 1973, he and JMB co-founder Robert A. Judelson formed Balcor Co., which raised more than $ 650 million to plow into buildings under construction.

The syndications made him wealthy -- he's worth some $ 60 million today -- and Reinsdorf decided to put his fortune to work in sports. In 1981, when Veeck put the White Sox up for sale, Reinsdorf assembled an investor group that paid $ 19 million for the team.

Soon after buying the Sox, Reinsdorf snagged catcher Carlton Fisk from the Boston Red Sox and slugger Greg Luzinski from the Philadelphia Phillies. He tripled the promotional budget to $ 300,000 and boosted the number of scouts from 12 to 20.

The rebuilding paid off quickly. By 1983, the Sox were in the American League playoffs, the first Chicago baseball team to appear in postseason play since 1959. As in '59, the Sox lost. But they could be playing again this October. Behind the slugging of first baseman Frank Thomas, the team is a power in the tough AL Western Div.

'DUMB' MOVE. One franchise turnaround wasn't enough for Reinsdorf, though. The Bulls, which had just drafted a University of North Carolina junior named Michael Jordan, were drawing only 6,365 fans per game to the 17,339-seat Chicago Stadium in 1985 when Reinsdorf bought control of the team. He syndicated the deal, which valued the team at $ 16 million, among 28 limited partners. That ''was the dumbest thing I ever did,'' says Reinsdorf. The Bulls' market value is now estimated at around $ 120 million.

Unlike the Sox, the Bulls under Reinsdorf have one league championship on their trophy shelf and are vying for a second. But getting there was tough. Working within the constraints of the NBA's salary cap, which limits a club's payroll to 53% of its revenues, Reinsdorf assembled a team around Jordan while rebuilding the front office. One measure of success: The Bulls, which did not even have a season-ticket program when Reinsdorf took over, today have an 8,000-person waiting list with maybe 15 openings per year.

Financial coups -- and controversy -- are nothing new to Reinsdorf. In 1982, he sold Balcor for $ 104 million to what is now called Shearson Lehman Brothers, the investment banking and brokerage arm of American Express Co. In 1988, staggered by tax-law changes that erased many of the tax advantages of real estate investment, Balcor's $ 5.5 billion real estate portfolio was in serious trouble, forcing AmEx to write off more than $ 200 million. Today, Balcor is the defendant in a $ 3 billion class action alleging that it fraudulently promised unrealistic returns and understated the risks of real estate investment. Reinsdorf, who is not a defendant in the suit, says it has no merit.

The Balcor sale left Reinsdorf free to run his athletic teams. And he's no absentee owner. ''I don't think that the people who own teams in either sport are involved enough in the day-to-day operations,'' he says. He's especially hard on baseball owners. ''Baseball is a poorly run business,'' he says.Clearly, Reinsdorf didn't charm his way to the top in baseball. Instead, his power rests on three key credentials: He built the new Comiskey Park; his team plays in the No. 3 TV market; and as a two-team owner, he can speak with authority on issues ranging from broadcasting to international marketing. ''Jerry is clearly the most powerful owner,'' says Donald Fehr, executive director of the Major League Baseball Players Assn. ''He thinks, he plans, he pays attention to detail. He pleads, he cajoles, he urges, he threatens. He's able to do almost anything he wants.''

Reinsdorf has become so powerful that some baseball executives believe he's cultivating a rivalry with baseball commissioner Fay Vincent. The rumors flew this year when, at Reinsdorf's urging, Major League Baseball hired former New York City transit chief Richard Ravitch as the league's labor negotiator -- at a higher salary than Vincent's. ''Paying Ravitch more than Vincent was a slap at Fay,'' said one National League general manager.

Vincent wouldn't comment on his relationship with Reinsdorf, but the Sox owner denies any friction because of the Ravitch hiring. As for the supposed feud with Vincent: ''I haven't said anything bad about Fay Vincent publicly, and I won't,'' Reinsdorf says. ''I like him personally.''

Reinsdorf is exerting commissioner-caliber clout in baseball's biggest current controversy. As a member of baseball's ownership committee, Reinsdorf has a large say in the debate over the Nintendo-led bid to buy the Seattle Mariners for $ 125 million. Reinsdorf won't discuss his position, but sources close to him say he won't back the deal unless a U. S. investor controls the team's voting shares.

Reinsdorf's pay-for-performance concept is also causing an uproar. Here's how it works: If his young players agree to forgo salary arbitration, available after three years of service, he'll give them long-term, incentive-laden contracts. But players who refuse -- and haven't accumulated the six years of big-league service needed to file for free agency -- are paid little more than the league minimum. Union head Fehr vows a fight over pay-for-performance when the game's labor contract comes up for renewal after the end of the 1993 season.

Fehr and others who oppose him should keep in mind that hardball has been very very good to Reinsdorf. After the owner complained about old Comiskey Park and threatened to move the White Sox, then-Illinois Governor James R. Thompson forced through a package of incentives to keep the team in Chicago. The state floated bonds to build a new stadium and let Reinsdorf keep all parking and concession revenues, as well as the $ 5 million per year from 89 skyboxes at the new Comiskey.

Premium seating is also the key to Reinsdorf's next construction project: a new hockey and basketball arena that will replace Chicago Stadium when it opens in 1994. The new arena will cost $ 240 million and feature 216 skyboxes. Revenues from the luxury boxes -- all but 11 of which are already leased -- have secured a $ 140 million, 25-year loan from a syndicate led by Japan's Fuji Bank Ltd.

If Reinsdorf has his way, the new stadium will be a studio for Bulls broadcasts on superstation WGN for years to come, a thought that rankles the rest of the NBA owners and Commissioner Stern. ''Jerry disapproved of superstation broadcasts until he moved his games to WGN,'' complains Stern. Indeed, as a baseball owner, Reinsdorf in 1988 scuttled the attempt of Gaylord Broadcasting chief Ed Gaylord to buy the Texas Rangers. ''It's bad for baseball to have owners who can benefit another business by losing money in baseball,'' Reinsdorf explains, referring to the low broadcast fees that station owners pay their captive teams -- while paying top dollar for marquee players.

NO PAIN. The distaste for superstations evaporated when Reinsdorf got the chance to put the Bulls and White Sox on WGN, which reaches 35 million viewers across America. But the Bulls' 55 regular-season WGN broadcasts compete with the NBA's national broadcasts on NBC Inc. and Turner Network Television. What's more, the Air Jordan show on WGN also competes directly with some local telecasts by lesser franchises. Reinsdorf claims that he's not interested in WGN's national reach. ''I just want to be on WGN in Chicago,'' he says.

The WGN dispute came to a head in October, 1990, when Reinsdorf sued the league, claiming it didn't have the authority to force him off WGN. So far, he has won in court, although the NBA is appealing. But his victory has already cost him and his fellow owners big bucks. Financial data in the Bulls' suit tipped off the NBA players' association that the owners may have lowballed the revenues on which players' salaries are based. Last December, the players formally charged that the Bulls and other teams understated such items as revenues from foreign broadcasts.

The NBA in January quietly agreed to a $ 60 million settlement with the players, but some owners are still steamed. Reinsdorf, says Jerry J. Colangelo, owner of the Phoenix Suns, ''doesn't have very many friends in the NBA.''

Reinsdorf is unrepentant about his suit's role in boosting league labor costs. ''Don't yell at me because I was the vehicle for this being exposed,'' he bristles. ''If you're doing something wrong, you deserve to be caught.''

That may sound a bit strange, since it was the Bulls that got caught. But with Reinsdorf, contradictions are part of the package: He may object to the Japanese buying the Mariners, but he's happy to let Fuji Bank finance his new basketball arena. He nixes a bid for a baseball club by a superstation owner but fights fiercely to allow a superstation to beam his Bulls games all over America.

One last contradiction: As an owner, Reinsdorf is all business. But as a fan, he is just as rabid as any hurl-the-beer-can-at-the-tube type. When the Bulls go on the road, Reinsdorf usually stays at home and watches the games on TV. His wife, Martyl, tends to leave him alone. ''I'm not much fun to be with during the game,'' he explains. If you don't believe him, just ask David Stern.

"Ways Of Doing Things"

“Ways Of Doing Things” feels honored to inaugurate its new weblog on the chief financial predators of Sports USA with a reproduction of Lester Munson’s classic December 1990 assessment of the owner of the Chicago White Sox and Chicago Bulls, Jerry Reinsdorf. In the nearly 16 years since Munson’s article first appeared on the pages of Frank DeFord’s short-lived National Sports Daily, Reinsdorf became perhaps the most powerful man in Major League Baseball (if he wasn’t already—Munson thought he was), and he rode the back of the incomparable Michael Jordan to six NBA championships in the 1990s. Still, we doubt that anyone over the past 25 years has caused more damage to the integrity of Baseball than Jerry Reinsdorf. Or been more successful at conflating the private with the public good. (Even now, Reinsdorf’s Relocation Committee is busy extracting upwards of $700 million in public funds for Baseball’s Washington Nationals.) Surely the number of bodies that this one man has left in his wake merits a wing of his own in any Robber Barons Hall of Infamy. That he and his ways are not universally repudiated is a testament to how rotten Sports USA really is. Enough said. Enjoy.


“Ways Of Doing Things”

Jerry Reinsdorf made a killing in real estate—and left some bodies behind. Now, as the owner of Chicago’s Bulls and White Sox, he brings his methods to bear on the business of sports

Lester Munson, The National Sports Daily
December 4, 1990


Jerry Reinsdorf is a “respected businessman.” It says so in all the programs and publications of the teams he owns—the Chicago Bulls and the Chicago White Sox.

He gained that respect by putting together a $7 billion real estate empire. Now he’s using the same edge that cut so sharply through the real estate business to carve himself a niche at the top of the world of professional sports, and he is, again, being described as “respected” by the titans of his chosen business. It’s a term that carries with it some awe, some concern, even some worry—but no affection. No one seems to be calling Jerry Reinsdorf an “esteemed” businessman or a “beloved” owner. It’s always “respected.”

Spend a few minutes with him, and you quickly see that “respected” is the way he likes it. Take a look at some of the things he’s done on the way to “respected” and you quickly see the reasons for the awe and the worry and the concern.

He made some superb deals along the way, especially from his point of view. But there have been some expensive complications as well, and the expense has been borne mainly by others. And while the others suffered, Reinsdorf was putting together one of the most impressive personal fortunes of the 1980s.

Reinsdorf accumulated the fortune by persuading thousands of people to “invest in America’s real estate” by joining him in what he called a “family.” He named the family Balcor, and he sold so many deals to so many people that he was able to sell the entire enterprise to American Express for $103 million, a second wave of profit on top of what he made putting the real estate deals together.

Now, with Reinsdorf safely out of Balcor’s business, both the real estate investors and American Express are suffering hundreds of million of dollars in losses related to Balcor business. The properties Balcor purchased under Reinsdorf are flooded with red ink, and there are bankruptcies and foreclosures on dozens of the investments. One group of investors has filed a $3 billion lawsuit against Balcor and American Express, claiming they are the victims of “fraud and racketeering.” Their claims are based on deals Balcor made while Reinsdorf was at the helm.

American Express is in the process of shutting down and liquidating Balcor operations, and it recently made a carefully worded public announcement admitting Balcor losses of nearly $300 million.

Reinsdorf has also left a tricky little trail behind him as a sports franchise owner “respected” by his peers.


* A half-billion dollar stadium deal engineered by Reinsdorf for his White Sox has the Illinois taxpayers paying for the stadium and maintaining it and even buying tickets if attendance falls below certain levels.
* An arbitrator’s findings put Reinsdorf in the middle of baseball’s collusion conspiracy, a three-year effort that saved the owners some money for a while but will soon cost them at least $280 million.
* A tough approach to negotiating contracts with younger players landed Reinsdorf and his White Sox in another arbitration, accused of violating baseball’s Basic Agreement and federal labor laws.


During all of this, baseball owners saw something they liked, and they’ve placed the “respected” Reinsdorf in some significant positions. He’s the chairman of the Ownership Committee, he’s on the Executive Council and the Long-Range Planning Committee, and he’s part of the all-important Player Relations Committee. He is, arguably, the most important owner in baseball today. In the NBA, a league with less direct owner involvement, he’s a member of the Long-Range Planning Committee.

There are only two men who own two major league franchises—the other is Ted Turner, who owns the Atlanta Hawks and Braves—and Reinsdorf in the only one whose sports business occupies 90% of his time. And no one has made himself more of a player in the sports industry that Reinsdorf.

** ** ** ** ** **

The new ballpark coming up across the street from the old one on Chicago’s South Side demonstrates the kind of thing Reinsdorf does best and how he goes about it. “There are ways of doing things,” Reinsdorf says. It’s one of his favored expressions. He uses it in talking about real estate and he uses it in talking about the sports business.

As a result of Reinsdorf’s “ways of doing things,” the taxpayers of Illinois will be spending $500 million on the new Comiskey Park over the next 20 years in a deal that is the envy of owners everywhere. Other cities, counties and states have helped local teams build stadiums, but this is the first time the taxpayers find themselves paying the team’s expenses, collecting virtually no rent and subsidizing the team in losing seasons.

Asked if any owner in any sport anywhere has a better deal than the one he made on the new Comiskey, Reinsdorf says “Maybe Baltimore, but I doubt it.” (Baltimore’s new baseball-only stadium will open in 1992, and it’s financed with taxpayer funds the late Edward Bennett Williams extracted from the public treasury in the aftershock of the departure of the NFL Colts under cover of darkness.)

It is a simple matter of money, Reinsdorf explains. The White Sox would have been worth more as the first major league baseball team in Florida than they were worth anywhere else—particularly, says Reinsdorf, a transplanted New Yorker, when the anywhere else was Chicago. The Sox would always be the second team in town, and they were confined to a facility built in 1910.

The choice was clear, Reinsdorf announced: either build us a new stadium, or we move to the Suncoast Dome in St. Petersburg.

Government officials bought what Reinsdorf was selling, and now the taxpayers are paying for it. Staffers from the office of Governor James Thompson, from the state legislature, and from a newly created agency called the Illinois Sports Facilities Authority found themselves negotiating the terms of the deal with Reinsdorf. The negotiations were held during a “budget” session of the state legislature, under deadline pressure. In the end, education funds for the children of Illinois were reduced, but Reinsdorf walked away with a stadium deal.

A look at the deal reveals clearly that the negotiations were, in effect, men against boys: one side was working on its first real estate deal, the other was a seasoned expert. Not only is tax money paying for construction of the new facility, but there will also be $5 million in payments to the Sox each year for upkeep, repairs and insurance. Although the state managed to negotiate its way out from under ticket subsidies in the first 10 years of the agreement, each season in which attendance falls below 1.5 million during the years 2001 through 2010, the taxpayers will buy as many as 300,000 tickets. Sox attendance has been below 1.5 million eight times in the last 13 years.

Although Comiskey is a public stadium, all ticket revenues go to Reinsdorf’s White Sox. They pay rent only in the form of fees on tickets sold after 1.2 million people have entered the stadium. If the Sox manage to sell 2 million tickets, they pay $2 million in rent. If the White Sox somehow sold every seat for every game—at $10 per ticket, that’s $35 million in ticket sales, fans—the rent would be only $4 million. And the taxpayers still would be paying the groundskeepers and replacing the light bulbs and fixing anything that breaks or wears out.

At the time of the deal, everybody seemed to think it was terrific. Politicians and the local news media were most concerned with “saving” their Sox. A Republican governor and a Democratic leader of the legislature agreed to Reinsdorf’s stadium deal, perhaps the only agreement the pair made in a decade. Even the mighty Chicago Tribune, which fancies itself a voice of fiscal sanity, proclaimed in an editorial that “there is nothing wrong” with the deal and that everyone involved “did the right thing.”

Looking back on it all right now, Reinsdorf says, almost wistfully, “The lease is better here, but we would have been $9.5 million better overall in Florida because of better television revenue.”

** ** ** ** ** **

Although he is proud of his role in the deal for a new ballpark, Reinsdorf denies any role at all in the owner collusion conspiracy that cost free agents substantial income for a while and will soon cost his fellow owners $280 million in damages.

Sports agents and others close to the case say Reinsdorf was in the middle of the scheme from beginning to end, but he denies it. “If I had been the architect of collusion,” Reinsdorf says, with just the trace of a smile, “it would have worked.”

The arbitrator who evaluated thousands of pages of evidence on the owners’ behavior during the collusion years used Reinsdorf’s conduct as a basis for ruling that the owners were guilty. Arbitrator George Nicolau cited a Reinsdorf phone call to Philadelphia Phillies owner William Giles as evidence that Reinsdorf, a member of the Players Relation Committee, was warning Giles against signing Detroit Tigers catcher Lance Parrish in 1986. Giles testified that Reinsdorf told him to remember his obligation to “fiscal responsibility” in talking to Parrish. “Fiscal responsibility,” according to Nicolau, was the owners’ code phrase for the collusion agreement.

The warning call from Reinsdorf was part of the owners’ pattern of collusion, Nicolau said in his 81-page decision on the 1986 season.

“All I said to Giles was to be smart,” Reinsdorf claims. “I told him that if he was going to be the high bidder on Parrish, he should not be the high bidder by much.

“I never used the phrase ‘fiscal responsibility’ with Giles,” he adds.

Nicolau also used a letter Reinsdorf sent to then Commissioner Peter Ueberroth and to the Detroit Tigers as evidence as evidence of owner collusion. Reinsdorf’s letters reported that Dick Moss, an agent representing dozens of major leaguers, had approached the White Sox about Jack Morris, one of the free agents who received no offers during the 1986 free agency period.

“Dick Moss is always trying to set [owners] up,” Reinsdorf asserts. “My letters were simply to say that we were not interested in Morris no matter what Moss may say later.”

Reinsdorf says that his letters resulted from his recollection that the Tigers had in a previous year signed Darrell Evans to a contract so large the White Sox owner thought the deal was “nuts.”

“When I asked the Tigers about it, they told me that they had made the offer because I had supposedly offered an amount just below their offer. I never made him any offer. It was a set up.”

Nicolau saw it differently. “The virtues of communication cannot explain his sending [letters] to the Commissioner and the Tigers,” Nicolau reasoned. He views it as evidence that “there was to be no bidding.”

In addition to those letters and phone calls to his fellow owners, Reinsdorf is now demonstrating his negotiating prowess for them in the way he handles his younger players. He tells players in the first three years of their career—when they are not yet eligible for arbitration—that they should agree to a multi-year deal with performance incentives, and waive their first crack at arbitration. It’s an offer they can’t refuse—or Reinsdorf will renew their contracts at the major league minimum.

“It costs me $3.7 million to develop a player who can play at the major league level,” Reinsdorf claims. “These contracts protect my investment in player development. I must use my leverage when I have it.”

The players union is unhappy with Reinsdorf’s approach. In an important grievance now in arbitration, the union charges Reinsdorf with a bad-faith attempt to sabotage the union’s valued arbitration clause.

“I don’t know what the union calls it, but I call it play-for-performance,” Reinsdorf explains.

“It is the worst deal for a player I have seen,” says Steve Comte, the agent for Dave Gallagher, a White Sox player who would not accept Reinsdorf’s proposal and initiated the union grievance, which contends Reinsdorf’s tactics violate the spirit of the owner-union agreement.

Oddly, the “play-for-performance” contract seems to hurt the top performers and provides a kind of insurance for the younger player who has a couple of bad years. Bobby Thigpen, one of baseball’s best and most valuable relief pitchers, agreed to it a couple of years ago and found himself pitching this year for $600,000, even though he saved 68 games in 1988 and 1989. Most agree the deal cost Thigpen more than $1 million.

The union grievance charges Reinsdorf with bad-faith bargaining in violation of federal labor laws and the union’s contract with the owners. The key issue is Reinsdorf’s negotiating tactic of telling the player he will be renewed at the minimum if he does not agree to a postponement of arbitration.

“If a player will give me a break on arbitration, I will make it worth his while,” Reinsdorf replies.
Reinsdorf claims that Gallagher, for instance, must obtain an arbitration award of more than $600,000 during the off-season if he is to do any better than the contract offer Gallagher rejected. “I don’t think he’ll make it,” Reinsdorf says of the outfielder, now with the Orioles, who hit .254 with only 32 hits in 68 games last season.

“Generosity with the players in the first three years gets you nothing,” Reinsdorf says. “The players do not go easy on you in arbitration year, so I decide what I’ll pay in the earlier years.”

It’s an approach that will be available to other owners if Reinsdorf wins the grievance. The union recognizes the importance of the issue—its first witness was Marvin Miller, whose leadership produced free agency and arbitration and most of the other major benefits the players now enjoy.

** ** ** ** ** **

Even if you put them all together—the new ballpark for $500 million and collusion for $280 million and young player contracts for a few million here and there—the value of these deals in dollars is nothing compared to what Reinsdorf accomplished at Balcor and what has become of it lately. It’s not a matter of a few wealthy owners and player contracts and millions of dollars. It’s a matter of hundreds of thousands of people, their retirement money and billions of dollars tied up in bad real estate and junk mortgages.

Reinsdorf was a co-founder of Balcor. “I made up the name,” he says. He was its chief executive officer as Balcor took more than 450,000 people as limited partners in real estate investments (at an average price of about $500 per share). Balcor, of which Reinsdorf was also chairman, was the general partner, the partner who made all significant decisions. Now many of Reinsdorf’s erstwhile partners want to know where their money is. One group has filed that $3 billion lawsuit. Other similar cases are expected, according to real estate analysts.

“There are 186,000 people in the class of investors we represent,” says Ronald Schy, the Chicago attorney who filed the lawsuit against Balcor and American Express. “Most of them invested their retirement money with Balcor.” The pension and the individual retirement account (IRA) money they invested have started to disappear, and much of what remains is tied up in a series of problem-plagued trailer parks, apartment complexes and office buildings.

Like a good chunk of their money, their “partner” Reinsdorf is gone. He sold Balcor to American Express in 1982 for a reported $53 million and stayed on as Balcor’s chairman until early 1988, bringing in enough new Balcor-American Express partners during those years to earn another $50 million from American Express.

Soon after Reinsdorf left to devote most of his time to the White Sox and Bulls, American Express began to discover that it had paid $103 million for some trouble. For many months, as Reinsdorf was putting the finishing touches on the ballpark deal, American Express tried to keep Balcor’s real estate partnerships afloat. Using its investment subsidiary (now called Shearson Lehman Brothers Holdings, Inc.), American Express poured money into the partnerships to prevent foreclosures and bankruptcies. It did not work.

Finally facing facts, the top executives at American Express made a series of decisions that effectively ended Balcor’s real estate adventures:


* They stopped selling real estate partnerships.
* They parted company with Reinsdorf’s handpicked successor as Balcor’s CEO, former Playboy executive Stephen Silverstein.
* They set aside $50 million for lawsuits they expected to be filed by investors in Reinsdorf’s deals, a figure some industry observers say is too low.
* They took a single-quarter loss of $200 million on Balcor business, part of a companywide restructuring and the largest element of what was then the biggest single-quarter loss in Wall Street History.
* They charged off $41 million in Balcor “goodwill,” an extraordinary accounting maneuver acknowledging that Balcor was not going to be producing any profits any time soon.
* They started admitting in the quarterly reports real estate partnerships must file with the Securities Exchange Commission that there were serious problems in Balcor’s real estate holdings.


And then American Express found itself at the wrong end of a class-action lawsuit in Chicago. It may become the biggest class-action recovery in the history of the securities industry. Some 186,000 of Reinsdorf’s partners want $3 billion in damages, mind-boggling numbers that even the attorneys for American Express-Shearson use in their statements in court.

“It’s a mega-disaster,” says Barry Vinocur, a writer and analyst with Stanger & Co., who has become a leading authority on the real estate industry.

The whole thing may seem complex, but to Reinsdorf it is simple. He has a complete and definitive explanation, an answer that disposes of every wrinkle and every complexity.

“When we were there, we were making money, and now that we are gone, they are losing money,” he states with a wave of the hand. That’s it. That’s the entire situation.

He left the company in January 1988, and he is not impressed with the things American Express has done with the investment properties he purchased for his limited partners.

“These are difficult times, but we worked our way through similar times before,” he says. “There are ways of doing things.” He adds, “They are good properties in bad times. That’s all there is to it.”

There are analysts tracking real estate partnerships who say something else. They say Balcor kept the lid on the trouble until it stopped selling the partnerships. Almost half of the $103 million American Express paid Reinsdorf for Balcor were essentially sales commissions for Balcor partnerships sold between 1982 to 1987. The partnerships sold during that period of furious sales activity are the partnerships that are now in trouble.

Other observers believe that there was so much investment money coming in between 1982 and 1987 that Balcor hurried its acquisition process and made some errors.

Whether it’s as simple as Reinsdorf says or as sinister as the analysts say, the battle over the losses has just begun.

The investors who filed the lawsuit poured $1.2 billion into Balcor from 1979 to early 1987, apparently responding to Reinsdorf’s sales pitch asserting that a partnership with him provided “a more secure retirement future.”

Most of the partners invested in Balcor products after the sale to American Express, but while Reinsdorf was still at the helm. After the limited partners put in their money, the general partner (that’s Balcor) decides what to do with it.

“I was not personally involved in the acquisition of the properties,” Reinsdorf now says of the investments Balcor made for its limited partners. “I was the chief executive officer, and we were so big by then that I could not be involved in each acquisition.”

He may not have been involved in each acquisition, but his expertise and his past successes were promoted in the sales effort that persuaded so many people to put so much of their retirement in the hands of Balcor. In a signed “Message from the Chairman” featured in the first Balcor brochures aimed at potential investors with retirement funds, Reinsdorf warned that “the Social Security system appears to be in great jeopardy.”

It turns out, however, that it’s the real estate investments Reinsdorf made with those retirement funds that are in great jeopardy. The retirement money is disappearing into foreclosures and bankruptcies. The financial condition of their real estate is so serious, in fact, that Reinsdorf’s “partners” will be lucky to recapture their original investment, much less the 40% return projected in Balcor’s sales brochures.

It was supposed to be a “conservative” investment that would provide for “capital preservation as well as capital growth.” These were the perfect investment vehicles, Balcor brochures claimed, partnerships in real estate that would “provide current benefits, security of principal and future growth.” Reinsdorf called these seven partnerships “Balcor Pension Investors” and gave them each a Roman numeral. The enterprise sold $345 million worth of Balcor Pensions Investors VI, the largest of the seven, in a 12-month period ending n late 1985, an amazing sales success of nearly $30 million a month.

Balcor promised these investors that their pensions would be put into “well-located and well-managed properties which provide diversity by type and geographic location.”

Not only were the investments supposed to be in solid properties, the investors were also told that they would enjoy a partnership with Balcor’s experts, people who “could meet today’s complex challenges of investing in real estate.” There was nothing to worry about, because “no Balcor property has ever experienced a foreclosure nor has any investor lost money.” It was all so perfect, a sure thing.

Many investors, even now, have no idea that their investments are in trouble. Unlike stocks and bonds whose values are set and reported in newspapers each day, there is no public market for real estate partnerships, no daily reports on value. The only sure way for the limited partners to discover what is happening in their Balcor investments is to go through hundreds of pages of quarterly and annual reports that Balcor must file with the SEC.

Here is what those reports reveal: There are foreclosures, and there are bankruptcies, and there are many properties in what Balcor calls “non-accrual” status, the first step on the path to foreclosure and bankruptcy. In the company where “no investor [ever] lost money with any Balcor partnership,” thousands of investors in dozens of partnerships are losing millions.

That information is stashed away in hundreds of pages of SEC filings. It’s the information Balcor started reporting after it stopped selling the partnerships.

In the rose-colored phrasing of failure used in the reports, Balcor does not talk about foreclosures. Balcor talks, instead, about “properties acquired by foreclosure.” It talks about “loan restructurings” and about “weak real estate markets in certain cities and regions.”

An investor concerned about the income he is supposed to be receiving from Balcor every three months would find this little surprise in the SEC filings: “The level of future distributions [i.e., the income] will be dependent on improved cash flow from property operations and the receipt of interest income from mortgage loans, as to which there can be no assurance.”

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It’s the “as to which” that is the killer. Instead of checks in their mailboxes, Reinsdorf’s partners now find themselves in some interesting predicaments.

Their conservative retirement investments now take the form of direct ownership and management of apartment buildings, strips of stores and trailer parks. Instead of enjoying the guaranteed income Balcor promised, they are now caught in the intricacies and uncertainties of commercial real estate management.

One of those properties is the Whispering Hills apartment complex near Kansas City, a mile from the new headquarters of the NCAA. Balcor invested more than $15 million a few years ago in 376 apartments on a lavish campus with tennis courts and swimming pools. It’s a terrific looking place, but no on can live there. Structural and electrical problems make the apartments too dangerous to inhabit.

The investors only hope is a lawsuit against a company in California that built the building, and the investors are paying the expenses of the lawsuit. It was filed in 1988 and is at least six months from trial. No matter how the lawsuit comes out, the partners must spend more than $3 million before they can lease the first apartment and start collecting rent.

At least the investors still have some hope on the Whispering Hills deal. Other properties have been lost completely, a process Balcor refers to in the SEC reports as “relinquishing title.”

Reinsdorf and the 6,000 partners in Balcor Pension Investors II bought into the Midway Office Building located in Tulsa. It was a disaster. Although Balcor thought the building was worth a $2.6 million mortgage investment, it was later sold for only $972,000.

Those Balcor investors were relatively lucky. In many other properties, Balcor and the pensions investors have lost their entire investment. How much of the $1.1 billion in pension investor funds has been lost? It’s almost impossible to measure, but a study of the recent public filings for seven Balcor Pension Investors partnerships shows that each of them is in trouble.

These SEC documents, filed after Reinsdorf left Balcor but measuring the investments made while he was CEO, shows that 40% of the pension investors’ money is in grave danger. There have been foreclosures on 30 properties. Seven more titles have been relinquished. The total of investments on “non-accrual” status is $261.6 million. That total, which does not include foreclosure losses and titles relinquished, is 24% of the money that Balcor invested.

In addition to these obvious signs of trouble, there are numerous other properties that American Express has put on financial life support systems, hoping to keep them alive. American Express officials are now hinting broadly that the life support will soon be unplugged, pushing many of the non-accruals in to total losses.

Federal law requires publicly registered real estate partnerships to set up reserves for such losses. These reserves are supposed to show “adequate recognition” of the problem. The loss reserves posted for these pension investments in the last three years total $142.7 million, which may represent only about one-quarter of the actual losses.

In addition to sales commissions that cost them about 10% of initial investments—well above industry norms—investors continue to pay Balcor annual mortgage servicing fees and legal and administrative expenses. Partners in Balcor Pension Investors VI, the largest of the series, have paid $5.4 million in expenses during the last three years, as their investments slid toward foreclosure and non-accrual.

The expenses for all seven partnerships during that three-year period total $19.2 million. Most of these investor-paid expenses went to what are reported to the SEC as “Balcor affiliates.” That means that while the investors were losing much of their principal, Balcor continued to earn income from those properties.

When the pension investors committed their funds to these Balcor partnerships, they were buying into a scheme known in the real estate world as a “wraparound” mortgage. It’s a little bit junk and a little bit juice. The amount of the debt is never reduced—in fact, it often increases.

In the investors class action lawsuit, they use words like “negative amortization” and “fraud and racketeering” to describe this bundle of junk mortgages.

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After Reinsdorf says that he had no personal role in selecting the Balcor properties that are now in trouble, he adds that they are good properties. There would be no problem, he says, if the people at American Express understood that “there are ways of doing things.”

He’s demonstrated those “ways of doing things” in the use of the public treasury to build a ballpark for his White Sox. He’s using those “ways of doing things” in his approach to contracts with young ballplayers. And those “ways of doing things” may or may not have been a big part of the owners’ collusion conspiracy.

He also has an interesting way of looking at things.

When asked if he—the “respected” businessman—is exposed to any danger from the huge losses at Balcor, his reply is simple: “I was just an employee.”