Falcone's SEC Charges: Bad Behavior, But Illegal?

The Securities and Exchange Commission today charged hedge-fund manager Phil Falcone with a profusion of misdeeds, from lending himself $113 million to pay his taxes to engineering a nearly perfect short squeeze in the bonds of a troubled Canadian plumbing-supply business.

My colleague Nathan Vardi describes the charges, as well as SEC Enforcement Chief Robert Khuzami’s condemnation. Falcone’s behavior, Khuzami said, resembled  “the final exam in a graduate school course in how to operate a hedge fund unlawfully.”

I’ve read the complaints and have just a few observations:

1. The bad behavior here was in an offshore hedge fund open only to sophisticated investors. They presumably knew Falcone wouldn’t run his Harbinger Capital like a Vanguard mutual fund. The SEC isn’t accusing Falcone of stealing money, but just moving it around in ways that may or may not have violated the fund’s rules.
2. The SEC accuses Falcone of lending himself $113 million to cover his tax bill in 2009 without properly notifying investors. But he has a powerful defense in the form of an opinion from an outside law firm that he could do it. The SEC says that’s a smokescreen to cover up his illegal activities, but the agency will have a tough time proving Falcone knew it was illegal if his lawyers told him it wasn’t.
3. The SEC says Falcone could have sold assets to pay his tax bill or taken a cut in his expensive lifestyle, but the complaint also says he thought he would have a taxable loss in 2009 to reduce his debt to Uncle Sam. Good for him he made money that year, but can the SEC prove it was unreasonable to expect 2009 would be as bad as 2008?
4. The claims refer to how he did things without the proper approval of, or by misleading Harbinger’s directors. Those directors were “two Cayman Islands residents” who, if thisFinancial Times story detailing the hundreds of hedge funds some Caymans directors represent is correct, might not be the best bulwark against management misbehavior.
5. The loan, whether or not it was improper, was twice collateralized and repaid in full. So the SEC must argue investors lost money because the interest rate — 3.66 — was too low. Harbinger apparently borrowed money at 7% from outside lenders at the time.
6. The claims regarding the Canadian plumbing-supply company, MAXX Holdings, may be legitimate but they are also fun to read. Falcone’s sin, according to the SEC, was to get mad at Wall Street banks who sold him MAXX bonds while simultaneously shorting them, without any sure way to get the bonds back. Falcone bought up the available supply — plus more bonds that had been sold short in excess of the supply –  and transferred them to a custodial account at a Georgia bank so they couldn’t be lent. Then he demanded delivery. The banks couldn’t get the bonds, a short squeeze ensued, and Falcone got his revenge.
7. If anything, the SEC complaint serves as an illustration of why hedge funds are mispriced. The allegations that Falcone manipulated the lockup period, granted preferential access to some of his investors over others and generally made life miserable for his investors after he failed to follow up on his big score in the mortgage market shows why hedge funds should earn much, much more than than mutual funds and other more liquid investments. Closed-end funds trade at a discount to open-end funds for a reason, and hedge funds run by mercurial traders who can choose when they return their money to investors need to generate much higher returns to justify the risk.

This Is What Happens When A Billionaire Tries To Get On A Plane With $1 Million Cash In His Luggage

For us, the everyday travelers sitting in economy class, checking luggage can be a somewhat nerve-wracking experience. Will our bag split open, revealing an embarrassing heap of rumpled lingerie? And forget allowing a baggage handler near your jewelry or iPad: we tend to stuff our valuables in our carry-on luggage.

Well, meet Christo Wiese. The 70-year-old is South Africa’s third richest person, worth $3.1 billion thanks to his shares in the African continent’s biggest retailer, low-price supermarket chain Shoprite.

Wiese’s travel woes couldn’t be further from the quotidian vanishing iPod. He’s facing a legal fight to recover over $1 million confiscated by customs officers because he was traveling with that huge sum in cold, hard cash bundled up in rubber bands in his luggage.

As the UK’s Daily Mail reported from London’s High Court, the billionaire tried to board a flight from England to Luxembourg in 2009 with two checked suitcases and one carry-on bag stuffed with a combined £674,920 — just over $1 million — in bills.

Says the Mail:

Dr. Wiese explained the money came from diamond deals in South Africa in the 80s and 90s, and had been kept in a safety deposit box in the Ritz hotel because of foreign exchange restrictions in his homeland, lawyers for the UK Border Agency said.

The UK justice system didn’t buy this explanation. A judge ordered that the money be seized under the assumption that it must be the proceeds of crime given Wiese’s unorthodox transportation method.

Wiese is now appealing this decision. His lawyer justifies his $1 million travel stash as completely in line with his vast wealth. As the Mail reported from court, barrister Clare Montgomery said: “The amount of money was consistent with Dr. Wiese’s stated wealth, representing less than two weeks’ income and a minute fraction of his assets.”

For the rest of us, two weeks’ income might amount to a few thousand bucks if we’re lucky. For Wiese, it’s the equivalent of a New York condo, all squashed into three suitcases.

Sheryl Sandberg Named To Facebook Board. Finally.

Sheryl Sandberg, the fifth most powerful woman in the world, Silicon Valley’s most-watched female and Facebook’s COO, has been named the first woman to the company’s board of directors after four years with the company. 

She joins CEO Mark Zuckerberg and six other board members that include Adreessen Horowitz’s Marc Andreessen, James W. Breyer of Accel Partners Reed Hastings, the chairman and CEO, Netflix and Founder’s Fund Peter A. Thiel, among others. Marketwatch reported and Facebook confirmed this news with FORBES this afternoon.

Given the pressure that’s been on Facebook to increase diversity on its board, Sandberg’s appointment does not come as a total surprise to the tech community. Women are a significant minority among those employed in technology jobs. Although women comprise 48% of the U.S. workforce, they hold only 24% of science, engineering, technology, and math positions, according to government statistics. As my colleague Larissa Faw noted recently, this imbalance means the few high achievers, such as Sandberg, are viewed as both an inspiration and as outliers, making today’s news even more compelling.

In the lead-up to the company’s spring IPO, pressure on Facebook to increase diversity on its board began to mount and my colleague Connie Guglielmo took note of a rash of protests. Ultraviolet, a community of women’s rights activists, protested outside Facebook’s New York headquarters in March and submitted a petition signed by 53,000 people collected in under 48 hours asking Zuckerberg to add a women to the board.

But while Sandberg’s appointment is certainly positive news, it does cast a light on the continued gender imbalance on the boards of some of Silicon Valley’s most popular and influential firms. By Guglielmo’s count Adobe Systems, Pandora, Zillow, Zynga and Splunk’s boards are no-girls-allowed,  while Apple, Groupon and LinkedIn have only one woman board member.

“Sheryl has been my partner in running Facebook and has been central to our growth and success over the years,” said Zuckerberg in a statement. “Her understanding of our mission and long-term opportunity, and her experience both at Facebook and on public company boards makes her a natural fit for our board.”

Before joining Facebook, Sandberg served as vice president of Global Online Sales and Operations at Google, and held a position in the Clinton administration, serving as Chief of Staff for the United States Treasury Department. In addition to Facebook, she serves on the boards of The Walt Disney Company, Women for Women International, the Center for Global Development and V-Day.

As reported by TechCrunch, Sandberg will have her own vote in all company matters, meaning she won’t be voting to represent anyone else—whether chief executive Mark Zuckerberg or other shareholders.

Why Google's New Tablet Could Be The iPad's First Real Competition

Google is just a couple of days away from debuting a new tablet that could finally shake up a market utterly dominated so far by Apple’s iPad.

Reports from Gizmodo and others say Google is likely to introduce the diminutive 7-inch tablet at its Google I/O developers conference (whose Wednesday keynote I will be covering live here). The kicker, according to the reports: The tablet, built by Asus, will start at $199 for an 8 GB of memory, up to $249 for a 16 GB version.

Amazon.com’s Kindle Fire already plowed this pricing ground, of course, so such a tablet wouldn’t be entirely new. But while the Fire has been reasonably successful for Amazon, it hasn’t made much of an apparent dent in the iPad because of its limitations, including a somewhat app platform controlled by Amazon itself. And the Fire doesn’t run a standard version of Android, making it tougher yet for developers to do apps for it.
Let’s not forget Microsoft‘s coming Surface tablet, either. But the reported pricing on that device, introduced last week, sounds quite close to the iPad’s. So unless it’s significantly better, which seems doubtful, it seems unlikely to mount a serious challenge.
But Google’s tablet, assuming as Chairman Eric Schmidt has promised (and this is a very big assumption) that it performs well, could for the first time challenge the iPad. And it would come at a time when tablets are the focus of everyone in tech from chipmakers and hardware manufacturers to app developers to marketers and publishers hoping to capitalize on a new mobile Internet device that could give them the creative canvas to rival (or exceed) the appeal of television and magazines. Here’s why Google might have a hit this time:
* It’s cheap. Now, merely being cheap won’t guarantee people will buy it in sufficient numbers to matter. But at $199, it doesn’t have to be every bit as good as the iPad. As Clayton Christensen has noted in cases dating all the way back to the transistor radio in the 1950s, a rival can most successfully challenge an established incumbent not by matching it feature-by-feature, but by offering something good enough for most people for a lot less money.
* The rock-bottom price will attract more app developers. If it’s decent enough to sell a lot thanks to the low price, that suddenly makes Android a more attractive platform for app developers. One of several reasons the iPad is the most popular app platform is that Apple controls the operating system version so developers don’t need to rewrite an app for each device running different versions.
Android is so fractured that it has been too much hassle for many developers to bother creating several versions of their app to run on devices running various Android versions. But all it takes is a hit product using the latest version of Android that sells in the millions–admittedly, not an easy goal to meet–to create that single standard that would help make Android apps a must for developers.
Of course, there are many reasons why this tablet, assuming it does indeed materialize (and today, that’s not a sure thing), could fall flat. Google’s record on its own hardware is poor, between the ill-fated Nexus smartphone to the Chromebook cloud notebook. And it has to overcome a considerable backlog of skepticism by developers about Android.
What’s more, Apple no doubt has some pricing tricks up its sleeve, so it could come out with a cheaper tablet. Given Apple’s brand and quality control, it needn’t match Google’s price–just get a little closer–to keep a not-as-good $200 tablet at bay.
Not least, depending on which features it sports, Google could end up mostly battling the Kindle Fire, leaving Apple’s iPad to remain popular even at a much higher price.
Still, it seems likely that before too long, Apple will face the first serious challenge to a device on which much of its future success depends.

iPhone 5: Every iPhone Accessory You Own Just Became Obsolete

Do you own anything that plugs into the bottom of your iPhone? An extra charger? An expensive dock? An iTrip? Anything else? Tough luck – its days are numbered. Techcrunch is reporting that Apple is working on a new 19-pin adapter for the iPhone 5, replacing the old 30 pin connector the company has used since the third generation iPod.
According to Techcrunch:

The connectors offered structural stability when connecting to most accessories but it’s clear – especially with the introduction of the MagSafe 2 port – Apple is more concerned with space savings inside each device.

Looking back on it, it’s sort of amazing that Apple held on to the connector for as long as it did – the company moves fast with upgrades to all of its products, and yet that standard connector has remained consistent for generations of new gadgets. It’s led to a proliferation of iPhone docks around the world – docks that, with the new iPhone 5, will be on their way to obsolescence.
There will be a fleet of new new iPhone accessories available when the new phone comes out, and anyone dedicated enough to wait in line for a new iPhone on launch day isn’t going to waste time upgrading. The environment will suffer, like usual, but expect accessory manufacturers to make a mint after an uncomfortable transition.
This was most certainly coming, and there was never any reason to expect Apple to hang onto the same adapter for more than a decade. And somebody will make a 19-30 pin adapter, but we’re still going to see the industry move towards making everything for the new iPhones rather than the old ones. I bought an iTrip when I went on a roadtrip to a music festival eight years ago. It’s worked for me ever since. Next time I want to upgrade, I suppose I’ll have to say goodbye.

Ed. Note — the original version of this article did not mention a 19-30 pin adapter.
Follow me on Twitter

How Facebook Can Avoid Being The Next Yahoo!

Which new media platform has rocketed to hundreds of millions of unique visitors, provides both utility and entertainment for the masses, and has become the destination of choice for its generation? If this were 1999,Yahoo! would be your answer. Today, that torch has been handed toFacebook. And with good reason, since they have embedded their ubiquitous social network of nearly 1 billion members into a large part of people’s lives and the digital ecosystem.

But Yahoo!’s challenges tell a cautionary tale for Facebook. Yahoo!’s  unique attributes have been effectively copied or supplanted in a world whereGoogle dominates search, content becomes ever more specialized and fragmented, and email no longer draws people in as they access their messages on ad-free smartphone apps. In fact, Yahoo has seen US monthly uniques drop from 100 million to less than 85 million uniques per month since last summer according to Quantcast and revenue trend in the same direction, as their role as portal has diminished.

So what can Facebook learn from Yahoo!’s fate? Ignore your clients at your own peril. Other pundits and analysts are talking about Facebook’s need to innovate on mobile, so I’ll leave that to them. Here are some choices Facebook must make to its core business, in terms of how it supports its clients in the next 18 months:

• Cater to advertisers that help create legitimacy, or change the business model. The media business has always served two masters – the audience and the advertiser. Facebook seems to think they can focus on the requests of the masses, vs. the biggest brands (and budgets) when it comes to paid placements. If they plan to continue that approach, they should recognize that their paid media will only come from transactional marketing efforts, like direct marketing campaigns, and that agencies will make the lion’s share of the engagement revenue.  Instead, Facebook should partner with the most influential marketers to define an experience that elegant serves the business and the audience.
• Develop in-house teams that can charge for helping brands succeed with engagement. If the goal is to remain focused on paid ‘engagement ads’ and otherwise let brands do their pages on their own, Facebook should build engagement teams that can advise – for money – how brands can drive the use of the platform for brand immersion. Rather than let the agencies walk away with that business, Facebook needs to align with them strategically, and help them optimize the experience for brand marketers. Clearly, Oracle andSalesforce.com recently got religion about how to capitalize on social, on the back of Facebook, with the acquisitions of Vitrue and Buddy Media, respectively (see my colleague Melissa Parrish’s take on those deals here, and a call fromShiv Singh at Pepsi on the rise of social suites).
• Design an ad-supported interface on the brand pages that allows advertisers to be creative. Facebook is both too plain and too rigid for the creative teams that support most brands. While this keeps things clean, it limits the effectiveness of the advertising they are building their business on. If the user experience on the Wall is sacrosanct – arguable since they have complicated the algorithms and clutter on that page – then they need to enhance the brand experience for those that “opt in’ for brands to appear on their wall. Forcing people into the Timeline structure challenges brands to develop a new brand or campaign platform, especially one that is hard to differentiate visually.

Yahoo!’s revenue is in decline, and their management shake-ups are due in part to a lack of clarity of what they are versus what they should be. Is Facebook a media platform? A consumer utility? Or something else? Either way, they need to listen to both of their customers, or someone will rise in their place the way they supplanted Yahoo! (and MySpace, and Friendster, and others).

For LeBron James, Ring Worth At Least $10 Million

King James is now truly the king.

NBA Most Valuable player for the third time, MVP of the Finals and of course, his first championship ring. Figure a good chance of an Olympic gold medal this summer, too.LeBron James has answered the critics, playing with focus, controlled zeal, his eye always on the prize. When his Miami Heat trailed Boston three games to two in the Eastern Conference Final, he exploded for 45 points and 15 rebounds for a huge road win that kept his club’s march to the title alive. Efforts like that are what earn fans’ admiration. Even those fans that aren’t predisposed to like you. And sports marketing experts say he’s about to cash in big time.

“Expect to see a lot of LeBron in the next month or two, in ads, on talk shows and in London,” says Bob Dorfman of Baker Street Advertising in San Francisco.

While he’s considered polarizing – disliked by a large swath of fans who didn’t like the way he handled his “decision” to switch teams two summers ago – LeBron still rakes in about $40 million annually in endorsement money. He ranked first among team sport players on Forbes’ recent list of highest-earning athletes, and fourth overall. Yet Dorfman figures that James could easily add to his endorsement dough by $10 million or so.

LeBron has the good fortune of winnng his first ring in an Olympic year. The 2012 Games, Dorfman thinks, provide the perfect platform for leveraging the new and improved brand brought on by the new NBA hardware. “He will likely be featured even more by his sponsors during the London Games,” he says. In addition to Nike, State Farm and other blue chip brands, Dorfman figures there’s room for LeBron to expand to financial institutions, autos and more -  if he chooses. And if the price is right. As Dorfman puts in: “You better have at least seven figures to offer.”

Follow Me on Twitter.

You might also like:

Photo Gallery: The World’s 100 Highest-Paid Athletes

Photo Gallery: The Most Popular NBA Playoff Jerseys

That's All Folks: Why the Writing Is on the Wall at Microsoft

This a guest post by Philippe Silberzahn, professor of strategy and innovation at EMLYON Business School. He is finishing a book on strategic surprises with Milo Jones, professor of strategy at IE Business School, and they blog together at silberzahnjones.com.

Should you ever fire the chief executive of a company that just reported record third quarter revenues and double-digit operating income growth? According to Forbes contributor Adam Hartung, the answer is a definite yes. Despite stellar financial results, Hartung argues thatSteve Ballmer has “singlehandedly steeredMicrosoft out of some of the fastest growing and most lucrative tech markets (mobile music, handsets and tablets) [and] in the process he has sacrificed the growth and profits of not only his company but ‘ecosystem’ companies such asDell, Hewlett Packard and even Nokia.” And Microsoft’s new tablet, announced this week, isn’t about to be a game changer, as Hartung also argues. Indeed, the company has been trying to sell tablets since 1998.

This is yet another example of what I like to call the Wile E. Coyote syndrome. Like the unfortunate character in the old Warner Bros. cartoons, Microsoft now seems to be a company that has long since run off the cliff but, with legs spinning for all they are worth, doesn’t know yet that it is ready to drop. Yet drop it most certainly will. To understand how this happens, take a look at the work of Arnold J. Toynbee, a historian who studied the rise and fall of civilizations. He argued that a civilization flourishes when it motivates insiders and attracts outsiders with its creative dynamism and culture. The civilization breaks down when its leadership loses this creative capacity and gives way to, or transforms itself into, a dominant minority. When this happens, the driver of the civilization becomes control, not attraction. And it’s precisely this switch from attraction to control that is the source of the breakdown. Interestingly, Toynbee says that the consequences may not be immediately apparent. A civilization can keep up momentum because the controls it puts in place generate some short-term efficiency. But eventually it will run its course and collapse, because no amount of control can replace the loss of collective creativity.

Observe this in the corporate world by looking at the example of General Motors. G.M.’s 2009 bankruptcy came at the end of a long decline dating back to the early 1970s, when Japanese cars first began to intrude on U.S. markets. Some researchers attribute G.M.’s breakdown to a decision made by its CEO back in . . . 1958. That was when the company decided that its divisional managers would no longer be part of its policy committee, putting an end to the fusion of strategy and operations. From then on strategy was increasingly detached from the field, and operations sat only at the receiving end of decisions made upstairs. Instead of being fully engaged in policy decisions, divisional managers were told what to do and how to do it. Perhaps not surprisingly, this was when G.M. opened the door first to Volkswagen and then to the Japanese, and the company experienced the first of many product flops with the Chevrolet Vega. The crucial loss of creative capacity was some 40 years in the making. Similarly Kodak was the darling of Wall Street for years as it was losing the digital war, a superbly managed slide to irrelevancy and collapse.

The same is happening at Microsoft. Until the late nineties, it was defining the software industry, and the best people in the field would automatically head for Redmond, because it was the cool place to work. But who thinks Microsoft is cool today? The company has no problem recruiting people, but it is no longer attracting the same sort of creative talent. Its focus is on perpetuating the past and make the organization run efficiently. It’s still hugely profitable, but a look at its figures shows that, in simple terms, it makes money from its old core business and loses money everywhere else. In Toynbee’s terms, the creative capacity has long gone. At the helm is a man whose mastery of numbers and operational skills is legendary—in short, a control expert preparing for the eventual collapse.

Can that fate be avoided? Any growing organization must put in place management systems if it wants to avoid chaos, and to ensure proper performance. However, these systems can gradually paralyze the successful running of the business. Things that were done informally when the company was still small and entrepreneurial now require planning and approval, and the organization starts to shift its recruitment away from entrepreneurs and toward administrators. This intensifies when the company goes public. Financial analysts, investment bankers, lawyers, industry “expert,s” and management gurus all exert a growing influence on the thinking and actions of the management team at the expense of the creatives, the old guard of engineers and entrepreneurs.

Of course every growing business needs to put management systems in place, but they should never be allowed to stifle innovation. So how do you combine the two to avoid falling off the financial cliff?

As in so many matters, people are at the heart of both the problem and the solution. The people you recruit now will determine your strategy 10 or 20 years from now. They will ultimately determine whether your company keeps its creative edge or drowns in red tape and reporting. And it starts at the top: The idea that entrepreneurs should hand over the keys to experienced controllers such as Steve Ballmer is fraught with danger. It’s a sure way for creativity to give way to control.

And when that happens, even a company as big as Microsoft may find that the writing on the wall clearly spells out “That’s All Folks!”

America's Friendliest Places for Starting a Business

Idaho, Texas, Oklahoma and Utah have the friendliest business environments in the United States, according to a survey from the Ewing Marion Kauffman Foundation and services directory Thumbtack. All four of those states won “A+” grades overall for low taxes, regulatory environments that are easy for small businesses to navigate and ease of hiring employees. Four more states won “A” grades (Louisiana, Georgia, Virginia and New Hampshire). At the bottom of the list, with “F” grades: California, Hawaii, Vermont and Rhode Island.

For complete survey results, see our interactive map of America’s best places to start a company, presented as part of Forbes Startup Month.

Facebook Is Ignoring The 'Greatest Internet Landgrab In History'

This week, Google is spending $18.7 million to snatch up territory in “the greatest Internet landgrab” in history. Facebook, meanwhile, is spending $0.

Internet-naming czar Icann decided that there’s not enough digital land to be had on the current top level domains, such as .com and .edu, so it’s creating new frontiers. Starting in 2013, there will be thousands of new domains, such as .pizza, .app, .google, and, fingers crossed, .howstupidisthis.

There’s a considerable price tag attached to controlling one of those new domains. It costs $185,000 to apply for each one, and competition is fierce for a few of the possibilities:

[Google] wants .google, .youtube, .goog and .plus. It was the only applicant vying for .fly, .new and .eat. But it is going to have to fight Johnson & Johnson for .baby, Microsoft for .docs and .live, and Amazon for 17 top-level domains: .wow, .search, .shop, .drive, .free, .game, .mail, .map, .movie, .music, .play, .shop, .show, .spot, .store, .talk and .you. Amazon also went after .tunes, .got, .author, .smile, .song, .joy, .bot, .like and .call… The most sought-after extension is .app, with 13 applicants though not Apple, which popularized the mobile application.

via The New York Times.

Google is going after more than 100, including .lol and .love. Apple, keeping its commitment to minimalism, is applying just for .apple. Facebook though is not going e-prospecting with its competitors.

“Facebook did not apply for .facebook or any other new top level domains,” says spokesperson Andrew Noyes.

The company may be taking the wait-and-see approach, to determine if having a top level domain is actually worthwhile. And there may be no need to sit on the name given that Icann has made clear it’s respecting trademarks when handing these out. Facebook will surely object if .facebook is awarded to someone else.

The question is: is this really necessary? From the New York Times:

There is also a lingering question about whether the new suffixes are needed at all. Some top-level domains that Icann has created in previous, smaller expansion rounds have attracted little interest. Many consumers find Web sites via search engines, rather than typing in an exact Web address. Others are increasingly using mobile applications, rather than the open Internet.

If the Web is truly on its deathbed, as Wired has claimed, those spending money on this may be .throwingitaway. Their money would be better spent on better mobile apps.

There’s some bad news for all those people, universities and companies that shelled out money to secure their .xxx address last year in order to protect their brands. They may be disappointed to learn that .porn and .sex will likely be coming out soon creating more opportunities to give a person, business or school an unwanted sexy touch.

 Read more:

Facebook Plans To End The ‘No Kids Under 13′ Farce

Amazon Just Spent Millions Applying For Domain Names. Why?

Facebook Keeps A History Of Everyone Who Has Ever Poked You, Along With A Lot Of Other Data

How Billionaires Like Warren Buffett Profit From Minor League Baseball Ownership

Warren Buffett, America’s second-richest man after Bill Gates, is worth $44 billion. The vast majority of that wealth is from Berkshire Hathaway, Buffett’s holding company based in Omaha, Nebraska, but a small portion comes courtesy of a Minor League Baseball team in the same state. Buffett owns a 25% stake in the Omaha Storm Chasers, the Kansas City Royals’ AAA farm team that is currently leading the Pacific Coast League’s American Northern division with a 36-25 record. The Storm Chasers rank No. 20 on our list of Minor League Baseball’s most valuable teams, taking home an estimated $8 million in revenue last season.
Click here to see the full list of Minor League Baseball’s Most Valuable Teams
And Buffett isn’t the league’s only billionaire owner, either. Robert E. Rich, Jr., who made his $2.1 billion with food conglomerate Rich Products, owns the Buffalo Bisons (No. 13); Herb Simon, chairman and director of Simon Property – the nation’s largest publicly traded real estate investment trust – is a co-owner of the Reno Aces (No. 14).
Why would some of the nation’s wealthiest men be interested in owning such small professional sports teams? Simple: it’s smart business.

Of the 160 minor league teams with player development contracts with MLB team, not one pays a single player, coach, manager or trainer. While the majority of MLB teams’ expenses go towards player costs, they are paid in full for minor league teams. The minor league squads don’t even pay the full cost for bats and balls; it’s split with the major league affiliate. It’s a sweet deal made even sweeter by the cities and counties that are willing to finance minor league stadiums in order to help stimulate their local economies.
In Pictures: Minor League Baseball’s Most Valuable Teams
Part of the reason that the top-drawing  minor league franchises are so successful is that they provide family entertainment at a reasonable price. The average MiLB ticket costs $7, which is almost four times less expensive than the $27 average cost of a MLB ticket. Plus, a family of four can attend a minor league game for $61, which includes food, drinks, parking and a program. Going out to dinner or seeing a movie could cost more than that, which makes minor league baseball games an appealing opportunity for families looking for something to do on a summer night.
Successful owners not only provide affordable entertainment, but they are also creative when it comes to drawing fans to the stadium. The Round Rock Express installed a “simulated rock wall” for fans to climb on, while the Frisco RoughRiders have an outfield pool for those warm summer nights. Many teams also offer between-inning entertainment, like mascot races and eating contests, and the non-baseball entertainment doesn’t end there. Minor league teams that operate their own stadiums often invite fans out to concerts or movie nights when the team is out of town, making it easier for team ownership to sell ballpark advertising and luxury suites. The RoughRiders don’t even charge attendance at their movie night, but they utilize the event to generate additional concessions and advertising revenue.
Pools and rock walls are a recent development, however, and they point towards the modernity of the top teams’ stadiums. In fact, 14 of the teams on our list have constructed new stadiums since 2000, and the impact is undeniable. According to a 2010 study by Towson University’s Department of Economics, new stadiums increase attendance by an average 1.2 million fans, or about 26%, for AAA teams. What’s more, the study found that new stadiums have a lasting effect on attendance: “The [attendance] increases from new construction remain relatively unchanged for the next two years,” and “ten years later attendance is still about 5-10% higher than the average.”
Our numbers show that the strategy is paying off. The 20 most valuable teams are worth an average $22 million dollars, with average revenue of $11 million. Teams on our list also averaged an operating income (earnings before taxes, interest and depreciation) of $4 million last season. The average team value is up 5% from 2008, the last time we undertook the study, and average revenue has increased by more than 12% in the same time period. The growth is quite impressive given the state of the economy since our 2008 list, though the low cost of attendance may have made minor league games even more enticing during a recession.
While even the top MiLB teams are worth a fraction of the $605 million that the typical MLB team is worth, minor league teams have often delivered spectacular returns because of the minimal investment required to buy one. Someone that paid $22 million for a team earning $4 million is roughly getting an 18% pretax return on capital. Another example of the great return on investment is the owners’ ability to sell teams for much more than the original purchase price. Craig Stein and Joe Finley bought the Ottawa Lynx in 2006 for an estimated $14 million. They relocated the team to Allentown, where it became the Lehigh Valley IronPigs, and it is now worth $26 million, tied for the second-most valuable team in minor league baseball.

In Pictures: Minor League Baseball’s Most Valuable Teams

To find the most valuable minor league franchises, we first limited our scope to teams with MLB affiliations, better known as farm teams. That omits MiLB-sanctioned foreign leagues, such as the Mexican League, and independent leagues. We then further cut down our population to MiLB’s top 30 teams in attendance last season. The reason is that minor league franchises rely almost entirely on in-stadium revenue streams to make money. Tickets, luxury suites, parking, stadium sponsorships, stadium naming rights, merchandise and concessions are the core sources of revenue. If attendance suffers, so do all of those income sources. But if attendance is bustling, then ownership can be confident that the cash will be rolling in. One example: 11 teams on our list ranked in the top 25 of MiLB merchandise sales last season.
From there we utilized available stadium leases and spoke with professionals involved in or familiar with the business of the sport to construct our estimates of team revenues and expenses. When a team’s financial details were unavailable, we made comparisons to teams in similar markets for which we had definitive data. Our final values were derived from multiples of revenue and attendance, using historical transactions as a guide.

Perhaps the smartest owners are those who try to maximize their minor league profits by owning multiple teams. Ryan-Sanders Baseball, led by Hall of Fame pitcher Nolan Ryan and business partner Don Sanders, owns two teams on our list: the Round Rock Express (No. 3) and Corpus Christi Hooks (No. 18). Mandalay Baseball Properties, a subsidiary of the Mandalay Entertainment Group, owns five minor league franchises. Two of them, the Frisco RoughRiders (No. 4) and Dayton Dragons (No. 8), made our list, and the Oklahoma City RedHawks didn’t miss by much. Joe Finely, co-owner of the IronPigs, also has individual ownership stakes in the Lakewood Blue Claws and Trenton Thunder, two teams that ranked among the top 30 in attendance last season. The multi-team investment approach to minor league ownership best highlights just how valuable minor league teams can be to business-savvy owners.

How 'Madagascar 3' Could Be One Of Summer's Biggest Hits

Prometheus faces a real challenge for the No. 1 spot at the box office this weekend from Madagascar 3. The DreamWorks Animation film is expected to earn $55 million this weekend according to Exhibitor Relations. Prometheus is expected to just top that with $57 million.
The two films are trying to attract audiences from opposite ends of the spectrum. Prometheus, which is rated R, is a strictly adult sci-fi horror film. Madagascar, the third installment in a franchise about a group of escaped zoo animals, is for kids and their parents.
I’m not a box office prognosticator but I’m willing to bet that Madagascar could earn even more than the pros are expecting this weekend. There’s been a real lack of kids films so far this year. The last big animated movie that opened was The Lorax back in March. That film was expected to bring in $47 million. Instead, it earned in a whopping $71 million opening weekend.
As a mother of two small children, I’ll never understand why Hollywood isn’t releasing as many as ten kids film per year. We love to go to the movies and I’ll take them to see something even if it looks crappy just for the fun of it. We parents are like that. (It helps if the movies are at least semi-smart though.)
Film critic Scott Mendelson pointed out the potential for Madagascar 3 a few weeks ago:

Anyway, point being, the family audience is painfully starved right now, which means that quite a few families are going to be wanting something… *anything* to take their kids to over the hot June weekends.

Not only is there pent-up demand for limited supply, but the people behind the Madagascar films are geniuses at marketing. Anyone with kids is familiar with the song “I want to move it move.” As sung by King Julien in the first film, the catchy tune became a key part of any kids party where there was dancing. If you see a kid on the street sing it to him and see what happens. It’s Pavlovian.
With Madagascar 3 they’ve managed to do it again — before the movie even came out. Many of the film’s ads have been structured around zebra Marty (voiced by Chris Rock) singing “Circus afro circus afro polka dot polka dot polka dot afro” to circus music while wearing a rainbow clown wig. The ear worm has infected almost every kid I know, including my own, and has them clamoring to see the film. In a recent issue of Entertainment Weekly, Rock said that kids on the street are asking him to sing the song. That’s some very powerful marketing.
So could Madagascar surprise like The Lorax and bring in as  much as $70 million this weekend? It’s possible. Fizziology, a company that tracks Internet buzz, says that 74% of the buzz on the movie is positive and that it’s coming from all age groups. Lesson to Hollywood: make more kids movies.