Money to Burn

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1:29Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Well, our next guest is the author of many books, several New York Times bestsellers, books about Goldman Sachs, The Fall of Bear Stearns. He's written about the Duke lacrosse scandal. He's written about his friends. He's written about General Electric. Eight books in 22 years. He was a Wall Street M &A investment banker for 17 years, then financial journalist, writing for a who's who of business journalism and more, including Businessweek. He was also a contributor to Bloomberg TV.

2:06Yep, and at one time even anchored with me, as I always like to remind everybody. His latest book, it is the eighth one, just out this week, Money to Burn, The Unvarnished Truth About Leon Black, Apollo, and the Rise of a New Wall Street. So lovely to have back with us, Bill Cohen. Thank you. How are you? I'm great. Thank you for having me. Well, it's great to have you here. We're going to get into the book, but I've got to ask you, because we have been doing the power players and talking a lot about sports today. And we think about Apollo, who has been certainly doubling down when it comes to sports.

2:38$2.6 billion financing for the New York Yankees.

2:43William D. Cohan:The hated. I'm sorry. I'm a Red Sox fan. Go ahead. Keep going. Then you have things like Mark Walters at Guggenheim. Like that whole. And Josh Harris, of course, who owns the Commanders and the Sixers. and the New Jersey Devils. I think about Wall Street. I think about sports, games, strategy, risk, and so on and so forth. Money in sports, though, in general, whether it's college, professional, good thing or bad thing in your view? Well, it depends. If you're an investor in sports teams, it's been the greatest thing since sliced bread because the asset values keep going up and up and up. Look at Mark Walter, for instance.

3:20Obviously, he's in some sort of financial distress. We're not really quite sure the extent of it or what it fully involves yet. He buys the Lakers last year for$10 billion, which I think was the highest price ever paid at that time for a sports team,

3:36William D. Cohan:and sells it in distress for a weekend for$12.5 billion. So even when it's a distressed sale and he needs to sell it, he pockets$2.5 billion on the whole arrangement in less than a year. So there you go. Is it all supply and demand? Is that what it is? Well, of course. I mean, they're not making any more of it. It's like waterfront property, but actually it's a lot more valuable than waterfront property because there are a lot of coastlines around. And the other thing that's been happening, of course, is this creeping willingness on the part of the leagues to allow private equity investors. First, you know, like commanders, for instance, Josh's team is all private equity guys.

4:21You know, the Lakers is Bob Iger and Josh Kushner. I don't know where they got the$12.5 billion. I'd still like to know where they're getting it. Last time I checked, Bob Iger didn't have$12.5 billion lying around. So, okay. But they're allowing private equity money into buying sports teams, which I think is the way the leagues have decided and the owners have decided that they have a chance of actually getting their investment out. I mean, it's one thing.

4:50William D. Cohan:I mean, how do Bob Iger and Josh Kushner get their money out of the Lakers when they pay$12.5 billion for it up front? Well, maybe they sell a little piece of it to another entity, or I don't know. I mean, look. You're right. There were, for instance, rough numbers. Like the Celtics were bought in 2002 for around$320 million, which I think was the largest price paid for that time for a professional league. Sounds so quaint right now. It sounds so quaint. And then last year they sold the team for basically$7 billion. So$320 to$7 billion, okay. I can work with that. That's, you know, in terms of returns and multiples, fine.

5:34William D. Cohan:But if you pay$12.5 billion, I mean, they made 20 times their money on that investment. How are you going to make 20 times your money if you pay$12.5 billion? What's your exit strategy? Well, I don't even know if you had an exit strategy, unless Elon wants to pay$500 billion for the Lakers. I don't know how they're going to get that kind of return. Maybe they don't need to. All right. Maybe they just have fun owning it, which is possible. Yeah, but it's a lot of money. A lot of money. A lot of money. Speaking of a lot of money, let's talk about your book and Apollo. A well-known firm, certainly something we cover a lot here at Bloomberg, Leon Black, someone we've covered a lot more lately, if you will.

6:13Why did you decide to write this book specifically? Is it because of the rise and fall of Leon? Is it because of the Jeffrey Epstein stuff? I'm just curious, what was it about the firm, the individual you found so interesting? Look, it's really important for me to have a great narrative, a great story. So, you know, I had been when I was a banker at Lazard and Apollo first started in 1990 out of the ashes of Drexel. You know, I'd known Mark Rowan since then when I, quote, covered Apollo as a banker. A totally thankless task, I might add. But, I mean, the fact that this story includes, you know, Drexel and Mike Milken and Leon Black being the head of M &A at Drexel.

6:59and then that firm implodes, and then out of the ashes come Apollo. I mean, and then the arc of the whole Apollo story, you know, just as a private equity firm and rough elbows, sharp elbows, and some successes, some big losses, you know, succession battle. But then you layer onto that the story of Leon's father, which is how the book starts. I don't want to ruin it for people, but that is a significant event, which, frankly, I hadn't fully been aware of over the years. I had no idea about it. It's pretty harrowing. I will not give it away. Pretty harrowing. Yes, thank you. And the struggle of the son to overcome the father's debacle, you know, for the rest of his life.

7:40That's fascinating to me. And then, of course, you layer in. I mean, who could ask for more when you layer in his involvement with Jeffrey Epstein that still baffles people, his involvement with extramarital affairs, which probably baffles people.

7:54William D. Cohan:So the succession battle, this fight with Josh. I mean, you know, when I stepped back and thought about it, I thought this is like this has it all. This is a Bill Cohen type of narrative. So, you know, when I started reading the book, I flipped to the end. Well, I did. I flipped to the end to look at sourcing and to get an understanding for like who participated. And I was shocked to find early on the buy-in from Leon Black, Mark Rowan, Josh Harris, who all worked with you. You shrug. Like, why did they participate? Okay. That's a question I never ask. If people want to participate, I don't ask why they want to participate.

8:36Was it difficult to get them to participate? Yeah, so maybe a better way to approach it is, like, how did you? It wasn't difficult. How did you approach them? Well, as I said, I've known Mark for 30-plus years. And I knew him as a banker, and then as a writer, I would run into him on Fifth Avenue and around town. And I noticed that he was getting more and more prosperous as he got older and accumulating more and more properties and assets.

9:02William D. Cohan:So I started with him, and then I got a call from Leon basically saying, don't you want to talk to me too? And, of course, the answer is, yes, Leon, of course I want to talk to you. I was just going to get around to reaching out to you. And then, you know, same thing with Josh. You know, I reached out to him. And, you know, I think, you know, I'm so glad that they gave me willingly of their time and on the record, right, without any kind of filtering going on. They did have their PR people there. But instead of hindering me, which some PR people can do, you know, maybe that's their strategy. They were facilitators, and I'm thankful for that.

9:42William D. Cohan:All questions were on the table. I asked them everything and anything. Were you surprised by anything that you got in particular? Of course I was surprised by things that I heard them say. Absolutely. I was also surprised that they were very open and cooperative. You don't always get that, and when you do, it's really nice. I've been blessed, knock wood, to get that most of the time. Some people can be obstreperous and uncooperative. And I've had people who were not cooperative after the book came out say they regretted not being cooperative. You haven't gotten any of that? Oh, no. I haven't. I mean, here, most of them were cooperative.

10:27I haven't yet heard anybody. I haven't heard any complaints yet. Maybe it's too early in the week before the complaints come. You know, it's not a book you read overnight. No, we actually have been talking about it in the newsroom because you go dig deep, really, into Apollo the Firm. The importance of the executive life insurance, credit DNA deals. Those backstories, they really help paint the picture of Apollo's DNA. Why was it so important, though, to kind of get to the heart, like sharing that within the book? I mean, I'm just a believer in taking a blank sheet of paper at the beginning of the story and just going through it.

11:04I mean, maybe that's why the books get so long. But, I mean, you can't tell the story of Apollo without telling the story of Drexel and Mike Milken and the collapse of those two things and how out of those ashes came this group of people. And, you know, it was not obvious that this group of ex-Drexel bankers who, you know, right after the collapse of Drexel, you know, Jewish guys basically from New York, were

11:32William D. Cohan:getting a big equity investment from Credit Lyonnais, the State Bank of France. You know, so Drexel collapsed. And then, you know, it was just, you know, very surprising that that whole series of events came about. And one of my favorite stories is that this guy from Credit Leonae was calling Leon like six times before Leon deigned to return the call. And here he was trying to, you know, essentially, you know, cut a deal with these guys. One of the things we wanted to ask you, and we were, again, talking about this before you were coming on our team. What was so unique about Drexel? It's like if you think about who came out of it, you know, it made me think of like the PayPal mafia after reading it.

12:13Right. You have like the Peter Thiel, Reid Hoffman, Elon Musk. I mean, the names that were coming up from the Mike Milken world. David Solomon, Rich Handler. Like, it's unbelievable. Yes, it is. Leon and his crew, you know, Leon's brother-in-law, Tony Ressler, started Ares. I mean, it really goes on and on. And then you sort of see it like in the group that Josh put together to buy the commanders, a lot of Drexel people. You know, it's akin to, as you said, the Peter Thiel coaching tree. I like to compare it to the Coach K coaching tree as a Duke guy. So it's an amazing group of alumni and what they've accomplished because the place was – I also told the story in the book about sort of the origins of Drexel, which was completely modest and mediocre, to be honest.

13:07And then it went into the stratosphere because of Milken. Yeah, which also makes sense considering how extraordinary an innovator he was.

13:17William D. Cohan:You know, he obviously took it too far and got himself pleading guilty to criminal behavior and spending time in prison. But other than that, Mrs. Lincoln, he was fabulous. Well, I do want to get remarkable. I want to I want to get to more more Leon and more Apollo. But I'm kind of stuck on the milk and in the innovation part of this, because that's something that struck me in the book. You know, there's this often touted thing that like the only financial innovation or Wall Street innovation has been the ATM. You really throw water on in the book and you talk about the innovation that Mike Milken did.

13:49And some others do it around the same time. So what did they figure out that others before them hadn't? Well, it turns out that Mike Milken was brilliant and like a brilliant, not only brilliant generally, but a brilliant student of finance.

14:09William D. Cohan:And it was actually a very simple idea that he took and made, you know, a whole new industry out of. Not unlike Mike Bloomberg here, to be honest. And so what he realized is that most companies at that time in the 60s and 70s had trouble getting access to capital. And unless you were like investment grade, you know, like a railroad or a bank or a steel company, you know, you know, had trouble getting access to capital. And so what he realized, you could actually lend money to these companies. They would pay higher interest rates, so investors would want it because they could get paid a higher rate of interest for buying these loans, and that the rate of default wasn't necessarily much higher, so that the chance to make more money from that investment, if you will, was actually exponentially higher.

15:03William D. Cohan:So he realized that these companies should be financed. And, of course, there were tons of companies that needed financing, long-distance telephone companies, cable companies, cellular companies, movie companies, Hollywood. I mean, he ended up, you know, the lodging industry, he ended up financing thousands of companies. Right. And he wanted 100 % market share. He innovated this at a time when people had no idea what he was up to. So Drexel was way off to the races, had huge market share. And then finally, other banks on Wall Street figured out what Milken was doing. competed with him, began to take market share, but still Drexel had the majority of the market share.

15:42William D. Cohan:And then, of course, he took it, you know, success sometimes leads to excess, and he took it too far in criminal behavior and pled guilty to things and spent time in prison. And then that pretty much led to the firm getting in trouble financially and legally and, you know, blowing up in February of 1990. But junk, high yield is such a part of normal market structure. For granted now, it's a huge innovation. Could you draw a line from that, sorry, to private credit today? That's what I was going to say, private equity, private credit. Well, absolutely, you can draw a line, at least in terms intellectually, because Mark Rowan worked at Apollo.

16:21I mean, he worked at Drexel, worked with Milken quite often and saw firsthand what he was up to and how the credit markets worked. And then when they started Apollo, they started off by buying all sorts of credit securities and hoping that they would, often at a distressed level, and hoping they would go up in price. Then they bought the executive lives bond portfolio for 50 cents on the dollar, paying$3 billion or something worth$6 billion, and made a fortune from that. And then he worked with Jessica Bimblewitz, Sandy Wiles' daughter, to create national financial partners and learned the insurance brokerage business.

17:02William D. Cohan:So all of that was hugely important, understanding credit, understanding insurance, understanding long-term capital. And then when the opportunity in 2008 came along to create a theme with Jim Bilardi, who used to work at Sun Life, he pounced on it. It's all about relationships, isn't it? Well, and not only relationships, because, you know, if you're like Jim Bilardi with an idea and you're looking for money and you're going around to a bunch of firms, that's, you know, you want to be one of those firms. But he did go over to a bunch of firms. But it's Mark Rowan having the insight, the spark, to realize that this was a huge opportunity and had the potential to be as important to the credit markets as Mike Milken's innovation with high-yield financing was back in the 80s.

17:50One of the things that we found, and our producer Talia, like we all have been kind of digging into. Hey, how'd you get the hardcover? The book. I just, you know, what can I tell you? We can get you one. Okay. The relationship between Leon, Mark, and Josh, the repeated mentions of succession plans, and who is considered a real co-founder. Yeah. Does that dynamic still loom over their relationships? Yeah. Over Apollo? Yeah. What is that about?

18:19William D. Cohan:rich people behaving poorly uh you know a lot of money sloshing around yeah success has many fathers right and so uh i mean look i think to be to be fair it was leon's firm uh and he started with a bunch of uh people who were like his peers at drexel uh john hannon tony wrestler others craig kogut really interesting great uh people right and then then they were like the associates, you know, need people to do the work. Josh Harris, Mark Rowan. Okay. Uh, in fact, it was Mark Rowan who called Josh Harris to come to Apollo. Mark, uh, Josh Harris had been at Blackstone after Harvard business school.

19:00And he was like, after three months, he left Blackstone

19:02William D. Cohan:to go to Apollo. I don't think anybody has left Blackstone after three months. Okay. So, so that was really, it was Leon's firm. He had sort of people who were his peers, uh, who started with him and then the associates josh and mark and michael gross uh and then you know so fast forward you know to around 2008 when leon decides like blackstone went public that maybe apollo should go public too by then like the peer group the initial peer group the john hannons the wrestlers the co-guys they had left okay and there were some still hanging around but basically it was leon and then this other group of people including mark and josh and he said look if we're going to go public We have to let investors know that there's a succession plan in place.

19:46William D. Cohan:We don't have to say what it is now, but let's just say it's going to be these two guys. And he gave them, you know, he controlled all the shares, most of the shares. And he had 93 million shares at the time they went public. He gave them each 58 million shares, which is now gave them, which is$10 billion of value. I mean, they made them instant billionaires. And he's also said, if you want to call yourself co-founders, be my guest. It's a marketing thing. You want to put it on your business card, do it. And now, of course, they're all co-founders. Everybody's a co-founder. We're speaking with Bill Cohen.

20:21He's a journalist and author. He's got the brand new book out, Money to Burn, The Unvarnished Truth About Leon Black, Apollo, and the Rise of a New Wall Street. I think we've got to talk about Jeffrey Epstein. I want to go there because it's interesting how you— Everybody wants to go there. Well, we talked a lot about a lot before we got to Jeffrey. You have a couple of chapters that kind of like get into it.

20:42William D. Cohan:Oh, yeah. I think somebody said it was not until page 430 or something that I get there. But I get there. You talk about the business relationship. Then you get into when Jeffrey was arrested. You talk about the third chapter, the Leon Revelations, things that came out after his 2019 New York arrest. So you spent some time on it. What do you think is the smart thing or the conversation we should be having around this? Or I don't know. Did he talk about it? Did Leon talk about it with you? Oh, endlessly. Yeah. Yeah, endlessly. And then, you know, it's all in there, chapter and verse. I've like been looking for a way to shorthand it.

21:20William D. Cohan:And it's a very hard thing to shorthand because there's more nuance to it than people are ready to deal with. You know, like most people think it's an innuendo-laced relationship. Like, how could you possibly pay$158 million to this guy for tax and estate advice you could probably get for$5 million from Paul Weiss? Well, there you go. And he has a long answer.

21:48I would have loved to have been able to refute his answers. I would have loved to have been able to find a smoking gun and be like the guy that found that Leon and Jeffrey Epstein had this horrible criminal-based relationship.