First published in the Financial Times on the 12th February 2013.
The trick is to spot the opportunity and move with speed to grab it
What trait is it that distinguishes the super rich from ordinary entrepreneurs? It is not intelligence, hard work or connections. What makes the difference is having an eye for the main chance. And when the big one comes, those destined for tycoon status seize the opportunity with superhuman energy.
A classic example of enterprising men taking advantage of circumstances was when the so-called Big Four built the Central Pacific Railroad in the western US in the 1860s. It took place against the chaos of the American civil war. Collis Huntington, Leland Stanford, Mark Hopkins and Charles Crocker were grocers in the backwater town of Sacramento, California who formed a partnership to win the franchise: in return for bringing trains, the government gave them huge land grants, making them the second-largest landowners in the country. When the Pacific Railroad Act was passed, their partner in Washington cabled: “We have drawn the elephant.” Selling off property along the transcontinental route brought vast profits and prestige – even now the Big Four live on, having universities, parks, streets and institutions named after them.
Most of us in business progress incrementally, oblivious to the life-changing openings that occasionally present themselves. But a few possess an extra sense that tells them: “This is the moment to take my share.” Everything else is pushed aside as they focus every sinew on the great prize. As the clergyman Thomas Adams wrote: “The ambitious climbs high and perilous stairs and never cares how to come down; the desire of rising hath swallowed up his fear of a fall.”
The modern case study is the privatisation of Russian industry in the 1990s. It was a unique moment in history. During a 10-year period ending in 2002 it is estimated that the oil and steel oligarchs came to own $160bn worth of assets from the state for a tiny fraction of their worth. They saw an ownership vacuum and pounced, allowing them to buy giant companies such as Norilsk Nickel, Yukos, Lukoil and Sibneft on astoundingly favourable terms. Oleg Deripaska went from being penniless in 1992 to being worth $28bn in 2008. He once told the Financial Times: “I was lucky. [My money] just fell from the sky.”
Another individual who has proved a master at exploiting an ownership gap is billionaire Bernie Ecclestone. In the 1970s, Mr Ecclestone appointed Max Mosley as a legal adviser; in the 1980s, Mr Mosley became head of the FIA, the body which governs motorsport and is responsible for granting F1’s vastly lucrative television rights.
In 1995, those rights were passed in full to Mr Ecclestone’s companies for 15 years. At the time, Mr Mosley said: “My belief is that I got a better deal than anyone else could have because it was more difficult for Ecclestone to take a hard line with me as we had worked together for so long.”
In 1995, Mr Moseley’s FIA extended Mr Ecclestone’s rights by a further 100 years, in return for $360m, which compares unfavourably to the £600m Kirch Gruppe paid for the rights to one football World Cup in 2002 or the £1.1bn Sky paid for a three-year package of English Premier League football. Mr Ecclestone understood that F1 team owners were engineers and former drivers, but not as wily as him: he realised how valuable the commercial rights could become, and took control in a secret auction with only one bidder – him.
Broadcasting franchises have historically been very valuable assets which have often been granted for nothing. It was Roy Thomson who coined the phrase a “licence to print money” after winning the Scottish TV franchise against negligible competition. This was the profit engine that fuelled the early growth of the Thomson fortune – now the richest family in Canada, and controllers of Thomson Reuters.
My broadcasting bids have been somewhat less enriching. The first was for a DAB radio multiplex at Channel 4; eventually we handed it back because we couldn’t work out how to monetise it. And more recently the consortium I headed lost the bid for the London Local TV franchise. Of course, the victorious bidders might yet find they are victims of the winner’s curse. But despite these setbacks, I suspect there are still treasures to be had grabbing hold of orphan properties where the owners don’t realise what they possess.