Hugh Hefner Is No Longer on Top at Playboy



Hugh Hefner Is No
Longer on Top at
Playboy
57,746 VIEWS
FEB 16, 2011 @ 08:17 AM
Jeff Bercovici
FORBES STAFF
I cover technology with an emphasis on social and
digital media.
FOLLOW ON FORBES (1287)
      
Opinions expressed by Forbes Contributors are their own.
FULL BIO 
Watson Health: Cogn...
Learn more about this story
Using data analytics to speed up clinical drug trials
Check out the IBM Watson press kit
Conversation
2h
IBM Watson @IBMWatson
Hugh Hefner may not be the big dog at Playboy anymore, but he still
enjoys certain perks. Image via Wikipedia
Last month, Playboy Enterprises announced
that “a limited partnership controlled by
Hugh M. Hefner” had made a $207 million
Using #ChefWatson & @bonappetit's app,
@NatGeo whipped up Black Tea­
Blueberry­Basil Granita. bit.ly/1RgQ6qR
http://t.co/UxKWc1QjnI
Reply Retweet Favorite
4h
Follow @IBMWatson
Enhance apps with Watson APIs. Register
for the web series #BuildingWithWatson for
IBM Watson @IBMWatson
deal to buy out the company’s shares and
take it private. To most observers, this meant
that Hefner once again owned the magazine
he founded back in 1953. That was the thrust
of dozens of news stories about the
transaction, anyway.
Recommended by Forbes
MOST POPULAR

Photos: The 10
Best And Worst
States To Make
A Living In 2015
TRENDING ON
LINKEDIN
7 Ways To Blow
Your Boss's
Mind
Northwestern
MutualVoice: 3
Rules For
Starting A
Business With A
Friend
In fact, Playboy sources say that Hefner’s
post­acquisition control of the famed brand is
largely honorary. Practically speaking, Hefner
is decidedly the junior partner in the new
venture, called Icon Acquisition Holdings LP.
That’s certainly true in terms of ownership:
Moody’s Investors Service estimated the size
of his stake at 37 percent in a debt rating
issued Friday. That’s against the 60 percent
stake held by Rizvi Traverse Management,
the private equity firm that backed him in the
buyout. (Playboy CEO Scott Flanders owns
the remaining piece.)
How can Hefner supposedly be the
controlling partner when he’s also the
minority partner? A Playboy spokeswoman
declined to answer that question, saying she
could only discuss information that has been
publicly disclosed in filings with the
Securities and Exchange Commission. Those
documents don’t reveal anything about the
ownership makeup of Icon Acquisition
Holdings. They do, however, include Hefner’s
employment agreement. Under the terms of
his $1 million­a­year contract, the 84­year­
old is guaranteed full editorial control of the
magazine and the right to continue living in
the Playboy Mansion for a nominal rent. The
contract automatically renews after five
years, and provides for Hefner to stay in the
mansion even if he leaves the company.
Those concessions, according to the Playboy
insiders, were the most important ones to
Hefner in any deal and the ones he focused
on in negotiations with Rizvi and other
potential suitors.
ADVERTISING
Hefner’s employment agreement also
bestows upon him “the right to approve the
overall image, costume and promotional
outfits used by Playboy Bunnies.” It ensures
he’ll have “meaningful consultation rights”
over the design of Playboy casinos. And it
grants him “the right to approve the creative
content, marketing and packaging of Alta
Loma Entertainment productions,” which
include “The Girls Next Door,” his reality
show. The agreement doesn’t say anything,
however, about Hefner having authority over
Playboy’s other television or radio operations
or its website, or any input at all into
business­side operations. In fact, a
confidential presentation created last year for
the special committee charged with
evaluating the competing bids for Playboy
laid out a “base case” assumption in which
the digital and television businesses are sold
in 2012.
Although Hefner only owned a minority of
the public shares of Playboy Enterprises —
which yesterday reported a $14.7 million loss
for its last quarter as a public company — he
maintained control of the company through
his ownership of nearly 70 percent of the
Class A voting shares. A two­tier share
structure is a common mechanism for owners
who want to tap the public markets without
surrendering control. But that would be
highly unusual for a private entity like the
one that was formed to acquire Playboy, says
David Bank, managing director of global
media and Internet research at RBC Capital
Markets.
“The majority of the equity capital being
contributed to the transaction is coming from
Rizvi,” says Bank. “Ultimately, operating
control tends to be fairly closely associated in
a go­private transaction with equity
contribution.”
Carl Salas, the Moody’s analyst who prepared
the report on Playboy, says that in private
companies, “certain minority shareholders
can have veto rights on certain things. That is
not too uncommon.” But, he adds, “in this
instance, I don’t have any information related
to that.”
Salas says Playboy reviewed the Moody’s
report he prepared in advance of publication
and did not dispute his estimates for the size
of the partners’ stakes.
Comment on this story

Report Corrections

Reprints & Permissions
SEE ALSO
TOP 10
PRIVATE
HOW TO START
PRIVATE
BUSINESS
EFFECTIVE
SMALL
SOCIAL MEDIA
Promoted Stories
1. Buffett Tells You
How To Turn $40 Into $10 Million 2 months ago fool.com The Motley Fool Fool.com (sponsored)
2.