Barbarians at the Watergate
Washington society adjusts to a new breed: the fast-moving, different-thinking, so very dot-com riche
In a blaze of lights at the MCI Center Arena, the nouveau Madison Square Garden of Washington, D.C., basketball superstar Michael Jordan made his announcement. He was acquiring an ownership stake in the Washington Wizards and would serve as the team's president of basketball operations.
The news, widely anticipated because of leaks prior to Jordan's January 19 appearance, played well in the capital. Neighbors couldn't stop talking about it. Pundits had a field day. It was the knell that signaled an end to the district's darkest days. There was a new Washington now, with a new, can-do mayor, Anthony Williams. The city's financial crisis was over. Real estate was rebounding. And now Michael Jordan, with that perennial movie-star grin, had arrived. Only one way to go, everyone seemed to be saying -- up -- a direction particularly well suited to His Airness (and the loss-ridden Wizards, too).
It hasn't been that long since D.C. -- besides being the seat of the most powerful government in the free world -- was a ranking murder capital with a standing mayor who was an international embarrassment. The city government was so mismanaged that stories of payroll checks being issued to dead or nonexistent employees were daily fodder for the Washington Post. "We've taken such a bruising in the past 10 years," says John Tydings, president of the Greater Washington Board of Trade, sort of a chamber of commerce for the Beltway. Now, though, the new mayor, the city's comeback, and Michael Jordan -- hell, even the Washington Redskins' finally making the NFL playoffs -- were like manna from heaven.
But Jordan's entrance was eye-popping in another, more significant way. The deal that brought him to town was done without any help from the usual suspects -- the cabinet officials, career politicians, lobbyists, media stars, Georgetown Brahmins, society hostesses, policy heads, real estate barons, and well-connected lawyers who have made the town what it is for decades, if not centuries. No, the people who landed Jordan were outsiders, like Wizards part-owner Ted Leonsis, who helped build a local company called America Online Inc. into, arguably, the first dot-com Goliath.
These new big-city players did the Jordan deal in their off-hours with play money, much of it from tech fortunes. They made a huge splash for guys who five years before hadn't even been on the radar screen, let alone on society-party lists. But this is a new day, and not only in Washington. Now politicians are no longer the role models they used to be, especially when compared with the strike-it-rich business stars. On March 9 the Wall Street Journal likened the new era to the turn of the last century, when industrialists with names like Carnegie and Rockefeller led the first entrepreneurial revolution. "It was an era when the economy -- with wildcat prosperity, businessmen as media superstars -- was shifting like tectonic plates; an era when Wall Street, not the White House, drove events," the Journal reported.
The first big wake-up call for Olde Washington had come only a week before the Jordan deal went down. That's when America Online -- a once unknown speck of a company dabbling in that Internet thing from offices in the distant suburbs -- announced it was buying Time Warner Inc. for upwards of $166 billion. The establishment movers and shakers were caught off guard by the hordes of tech millionaires making waves in "our city."
"They don't know who these people are. They don't know anything about them. They don't even know enough to be suspicious," says Sally Quinn, the Georgetown high-society hostess who offers a window on the elite and also helps shape its outlook through her writings in the pages of the Post. "The first moment anyone ever thought about it was the AOL thing, and they said, 'Oh, my God! That's what they do over there."
None of those people were bred in Georgetown. Nor did they attend St. Albans, the elite private school in northwest Washington. Most don't even have degrees from Yale or Harvard. Worse, they couldn't care less about the society way of life. They trade neither on their social connections nor on their pedigree but rather on their business exploits, which might include a flaming dot-com failure (it seems to give them credibility, of all things) as easily as a stunning success. Instead of considering social standing in the good old-fashioned meaning of the term, they measure one another by the growth curve of their companies, the size of their paper fortunes, and the global impact of their businesses.
Washington, to put it politely, has always been defined by power and access -- who's got it, who wants it, who lost it. Money has never been a part of the equation; certainly not in the way it is in, say, New York. But now money is a force to be reckoned with, big-time, and it's here to stay. Politics has always supplied Washington with a new crop of movers and shakers, who tended to assimilate into the standing social fabric, refreshing their own ranks with each election. But this new group of tech-fortune youngsters isn't leaving with the next election. "The way I view it, this is the biggest thing to happen to this city since Washington was made the capital of the nation," says Quinn, who notes that the recent arrivals are infusing much-needed new blood into a town where the old money kind of "dried up." And she enthusiastically welcomes the transfusion. "It's going to have a big impact in every way," she predicts.
Washington used to be quaint, run by a stable circle of friends. Not anymore.
To understand how all that is playing out, you need to look at the people who made the Jordan deal happen. The aforementioned Ted Leonsis, now president of AOL Interactive Properties Group and worth an estimated $1 billion, came up with the idea. Originally, he'd been a marketing guy with a company of his own, whose operations were folded into AOL when the larger company bought him out, in 1994. The then-unproven online service paid $45 million, mostly in stock, for Leonsis's CD-ROM catalog company. That brought Leonsis on board for practically the whole AOL ride, all the way from obscurity to megagiant. Now he's using the resources he gained to have some real fun.
In May 1999, Leonsis and two partners plunked down $200 million for the Washington Capitals hockey team and a stake in the holding company, which counts the Wizards basketball team among its multiple properties. Leonsis figured that snagging Jordan would be the ultimate buzz card, elevating the profile of both teams. He and his group took a meeting with Jordan at his Chicago restaurant. Under the deal they eventually cut, the one that was announced at the MCI Center, Jordan got the front office of the basketball team, a stake in the partnership, and a chance to play with the dot-com boys. ( Boys is not a casual term; modern as dot-coms may be, there are few women among their ranks in Washington.)
The way Leonsis tells it, the Capitals' Web site will be the foundation for building an "Internet distribution channel" for the team in the same way that Ted Turner used cable TV to promote the Atlanta Braves. Right now the Capitals are red-hot. If Jordan also manages a comeback for the Wizards in the next few years, it isn't hard to figure the upside: valuable teams, Web channel, and then the eventual acquisition of the entire basketball franchise when its current owner, Abe Pollin, 76, retires. No doubt, this was a value investment for all concerned.
Six days before Jordan made his role official, Leonsis brought in a partner, Raul Fernandez, to help design the sports-team-cum-Web vision. Fernandez immediately took a place on the roster of Washington's new power players. Just 33, he is a card-carrying member of the current crop of dot-com millionaires. He is the founder and CEO of Proxicom Inc., a fast-growing Internet-consulting firm based in Reston, Va., that serves clients like General Electric Capital Corp., Mobil Corp., and Mercedes-Benz Credit Corp. And he's a big sports fan. "I told Ted last summer, 'If you ever need another partner, I'm in," he says.
Fernandez has gotten a lot of ink lately, being featured in the Wall Street Journal and on the cover of Fortune, where he appeared right next to Jordan ("America's 40 Richest under 40"). His background speaks volumes about how diverse the new A-list in D.C. can be. Fernandez is the son of a Cuban immigrant who came to this country with $100. He grew up outside Washington, D.C., attended the University of Maryland, and then worked on Capitol Hill for Congressman Jack Kemp. In 1991, with $40,000 in savings, he formed his own company. It grew like crazy and went public in April 1999. Since then Proxicom has grown so rapidly that Fernandez's 28% stake is now worth about $600 million. With that kind of money, he can afford to indulge his "love of competition, in any form."
Although he jets around the world all the time -- Proxicom is steadily expanding -- Fernandez calls the sports team his "night job." It has raised his profile, as have his other local activities. Fernandez talks passionately about the importance of community service and appears on philanthropic panels. He is conscious of being a role model for his employees, many of whom are already millionaires in their late twenties and early thirties -- the coming shock troops for the new establishment.
The rise of a figure like Fernandez is just another signal that times are changing inside the Beltway. Talk to one of the society veterans, like real estate power broker Robert Linowes, about the Washington business world of the 1960s and 1970s. You'll get a picture of a quaint, provincial town, run mostly by developers, bank managers, and retail executives, who would welcome the other power players -- the pols and their minions -- in full knowledge that eventually most would return to wherever it was they came from.
By contrast, the old Washington hands Linowes recalls knew one another: they sat on the same corporate and philanthropic boards. In the evenings they hobnobbed with the ever-changing political-cultural elite. "It was incestuous, but no one even thought about it," Linowes says, recalling the days when the landscape could be altered by a few words over dinner at the Willard Hotel. "Conflict of interest? If you didn't have a conflict, you didn't have any interest." It was a cozy little community in those days.
But that community has long faded away. The local retail chains were bought out or folded. The banks were gobbled up, the CEOs with community ties replaced by professional managers. And while Washington's business world was devolving, the federal government was seeding a vast and entirely new industry outside the city's borders. So-called Beltway bandits grew by feeding an insatiable demand for information technology, supplying all the computers, software, telecommunications services, and training that could fit into the budgets of federal agencies. The defense buildup and deregulation of the telecommunications industry during the 1980s fueled the growth of high tech so well, it now has more employees in the D.C. area than the federal government itself.
By the mid-1990s, the local versions of Silicon Valley-style growth companies were primed like a tinderbox ready to explode. The technology, the communications, and the workforce were all in place. All that was needed was the economic spark -- and then came the Internet.
Mike Daniels, chairman of the Internet-domain-registration company Network Solutions Inc., based in Herndon, Va., is a prime example of a player who was brought into the game by the dot-com revolution and the explosion in Web businesses. He's one of the "new" breed that was actually in the area all along, one of the tech executives who had worked for decades in obscurity under the shadow of the military- industrial complex. He started out as a naval research officer at ARPA (the Defense Department's Advanced Research Projects Agency, which invented the Internet -- first known as the ARPANET) and then formed his own technology-consulting company. He sold it in 1987 to Science Applications International Corp. (SAIC), an employee-owned company and one of the Beltway bandits. "We were very typical of what went on here in the Washington technology community, especially in the northern Virginia side, until the Internet revolution began," says Daniels.
In 1995 he convinced SAIC that it should buy Network Solutions for $4.8 million. Network Solutions was as close to being a world-dominating organization as there ever was, if you consider cyberspace to be the world. The company was the registrar for the Internet, the keeper of domain names on the Web.
Daniels became chairman of the subsidiary and led its initial public offering. In March, VeriSign Inc. agreed to buy Network Solutions for $21 billion. Obscure no longer, Daniels is a made man. Now he appears with the Steve Cases and Michael Dells of the world on panels such as Governor Jim Gilmore's 2000 Global Internet Summit, which was held in March in Fairfax, Va.
The pace at which this new world has emerged isn't lost on traditional power brokers like Linowes. In the past, he says, if he wanted to raise money quickly on behalf of some philanthropy, all he had to do was get on the phone. With calls to 20 close friends from the city's business community, he could complete a fund drive. That's all changed now.
Trudging out to northern Virginia recently to seek funds for the Smithsonian's National Air and Space Museum, Linowes met with a number of the new-wealth class of greater Washington: high-tech executives. "But I had to be introduced. No one knew me," Linowes said afterward, briefly interrupting the interview to take a call from the governor of Maryland. And what of the old crowd in the Washington business world? Where are they now? "Either dead or out of business or both," he said, laughing.
Anthony Kennedy Shriver (a member of two of the "best" families in town) started the nonprofit organization Best Buddies in 1987, when he was a student at Georgetown University. His organization offers social and employment opportunities for the mentally retarded. In the early days, he says, he relied on his family's circle of friends -- Washington's political and cultural elite -- for the donations he needed.
That all changed in 1995, when Shriver was introduced to Leonsis. The AOL honcho decided to make Best Buddies his charity of choice. Leonsis came aboard as cochairman of the Best Buddies ball, the nonprofit's fund-raising event, and one that drew many famous names. But not the names Leonsis could draw. He brought in his contacts from the high-tech world. "Honestly, in those days no one had heard of Ted Leonsis, and when I told my mother, she was like, 'Fine, whatever. It's your thing," Shriver recalls. "But Ted was willing to work and get involved, and that's what we were looking for."
Now Shriver talks about the "pre-Ted" and "post-Ted" eras at his charity. "I try to avoid remembering the pre-Ted days, because they were very unpleasant," he says. In those early days the charity typically raised anywhere from $200,000 to $300,000 from the establishment. But with Leonsis working the phones -- or rather, E-mail -- the northern Virginia tech crowd began to show up in force at the Best Buddies ball and to give generously. Last year, with Leonsis's Wizards partner Fernandez serving as cochairman of the event, tickets went as fast as shares in a dot-com IPO. With the ball oversubscribed, Shriver expanded the tent at his aunt Ethel Kennedy's Virginia estate, and then he sold out again. When the black-tie event took place, in October, limos got stuck in the driveway. Muhammad Ali posed for pictures. The Pointer Sisters sang. The Kennedys welcomed guests. "People showed up from my family, but they didn't know anyone, which from my perspective was a great sign," Shriver says. Best Buddies raised a record $1.1 million that night.
"When we hold events in Hollywood with a good number of celebrities, or in Houston, Palm Beach, Miami, or New York on the Forbes yacht, we raise maybe $300,000 to $400,000 a night," Shriver says. "Washington just blows them away." He is calling the upcoming 2000 event the "dot-com ball." And this year he plans to raise $2 million. It will be a real A-list event, especially in the tech community -- a party "where anybody who is anybody in the Internet world will be," he says.
That example hasn't been lost on the region's cultural institutions, ones that have been at the heart of the Washington social circuit for ages but that have been at a loss to capture much of the new wealth. "In the 1990s, at almost every board meeting I attended, the question was always raised, 'How are we going to get those people interested?" Linowes recalls. "Almost every major foundation and charity had a committee aimed at doing just that."
"Is it a conscious strategy to get those new people involved? Yes. Is it organized? No," says David Levy.
The disconnect makes sense when you think about it. Many of the new paper millionaires are young and simply haven't had the time that the older crowd has had to focus on how to give money away. And many of the philanthropies have never had ties to a class of people who lived on the wrong side of the Potomac River. But that's changing. The Corcoran Gallery of Art, which as the largest privately funded art museum in the capital also runs a college of art, recently lured Bob Pittman, president and chief operating officer of AOL, to its board; he's the first major figure from the tech community to join at that high level. Why, you might say that Pittman -- the New Yorker credited with creating the massive MTV phenomenon before making his high-profile move to start shaping the world in AOL's image -- had finally arrived. But you'd better have your tongue firmly in your cheek, because in this case it seems that Pittman brings as much cachet to the Corcoran and the society it represents as they give to him.
"Is it a conscious strategy to get those people involved? Yes. Is it organized? No," says David Levy, the Corcoran's president and director. The way he sees it, people give money for two reasons: to support the arts and education and to gain access to social and cultural circles in Washington. "We provide that access, and they provide the support," Levy says.
What's not clear, however, is whether access to society is something the dot-com crowd wants. Where a charity-board seat might have been de rigueur for the well-bred, it's more of a fun option for the newly minted.
As Linowes says, "We had a certain way of giving and a certain level of giving. These people want to do things in new ways." Remember, many high-tech fortunes were spawned by battling the establishment business world. These start-ups exploited small niches and built new entities by going against the grain.
The late Bill McGowan, founder of MCI, is a perfect example. In fact, he's something of an √"ber role model for many of the established entrepreneurs in the region, because his Washington-based company battled giant AT&T for years. McGowan used to exhort his troops, Whatever AT&T does, do the opposite. That rattle-the-gates strategy worked for all who followed, and they prospered by it. Why change any of those attitudes now?
Already, there are strong indications that Washington's technology elite is treating philanthropy in a very different way from that of the establishment. Many even take umbrage at the word philanthropy, since it suggests a handout rather than an attempt at producing fundamental change in people's lives. Mario Morino, chairman of the nonprofit Morino Institute, in Reston, Va., for example, speaks in no uncertain terms of the need for "social change" to correct the huge disparities in wealth and opportunity for youth in the region. He's not going by Karl Marx; quite the opposite. He's repeating lessons learned by virtue of his entrepreneurial experience, which some would term ultimate capitalism.
Morino earned his first entrepreneurial merit badge building Legent Corp., a software company that was sold to Computer Associates International Inc. in 1995 for $1.8 billion. By then Morino had stepped back from day-to-day business affairs and embarked on an eight-year odyssey to figure out how to give some of his $140 million away. Oddly, he found it harder to properly give his wealth away than it was to build it in the first place. [In the interests of full disclosure, the writer of this article worked on speeches for Morino a couple of years ago.]
"We took [MicroStrategy founder Michael Saylor] to lunch, and over the course of that lunch his net worth went up by $145 million."