How Jewish Billionaire Ron Lauder’s Media Empire Crumbled

The billionaire's business debacles have led to his distancing from circles of power and seriously damaged his statesmanlike image.

AP

Jewish-American billionaire Ronald S. Lauder left Israeli television station Channel 10 a year and a half ago, after 11 years during which he lost some $130 million (500 million shekels) on his investment. But it turns out that at the same time as his troubles in Israel, he has been suffering for the past two years from a business debacle in Eastern Europe that has led to his distancing from circles of power and seriously damaged his statesmanlike image.

Throughout his business career, Lauder’s “business model” has always rested on two main foundations: the large amount of money that he inherited from his parents (his mother was the cosmetics queen Estée Lauder), and the political connections he earned himself over the years, including close relations with Prime Minister Benjamin Netanyahu. These two assets have been the backbone of his business in Israel, and all over the world.

Lauder, 71, has served as the president of the World Jewish Congress for the past eight years. He served as United States Ambassador to Austria in the mid-1980s under President Ronald Reagan; in the U.S. Department of Defense as Deputy Assistant Secretary of Defense for European and NATO policy; ran for mayor of New York in the Republican primary in 1989, losing to Rudy Giuliani; and was asked by Netanyahu to serve as a negotiator with the Syrians on Israel’s behalf starting in 1998.

He is also known as a major philanthropist and art collector. Forbes estimates his net worth at $4 billion, and his 4,000-piece art collection at over $1 billion.

On one hand, Lauder is known as an active and enthusiastic Jewish philanthropist who has established foundations that support Jewish education all over the world; he has contributed large sums to institutions of higher education, as well as his work in organizations such as the World Jewish Congress and many others. He is welcomed all over the world at the very highest levels as a representative of the Jewish people.

At the same time, Lauder is still a businessman with great influence in the world of media and television, and is often negotiating his own complex business and regulatory issues with the same people he meets with as president of the WJC. This mix of the public and private business of the Jewish world has often led to criticism of Lauder among his many political rivals, especially in the WJC, as well as other Jewish organizations.

This dual allegiance, to business and the Jewish community, opens numerous possibilities for conflicts of interest – and is well known to Israeli television viewers. The complex relations between Netanyahu and Lauder have had a major influence on the survival of Channel 10.

When Netanyahu and Lauder were on good terms, the broadcaster received what it wanted; and when Lauder and Netanyahu had a falling out – then the prime minister made things as difficult as he could for the station.

But it turns out that the Israeli case is just one example of how Lauder has garnered influence and connections, and then used this power for the benefit of his business ventures. He has made such connections and influence in other countries beside Israel over the years, and then done business there, using his presence in one of the most influential industries in any country around the world: television.

Partnership with Romania’s ‘Mr. Television’

Lauder left the family cosmetics empire in 1984 to become involved in international politics, joining the Reagan administration in the Department of Defense. Even though two years later he served for only 20 months as the ambassador to Austria, this was enough to help him start making the right connections in Eastern Europe at the time the Soviet bloc was disintegrating at the end of the 1980s, and the gates to Eastern Europe were opening up to American businesspeople.

This allowed Lauder to establish two media companies in Eastern Europe by 1995: Central European Media Enterprises (CME), which owns dozens of commercial television stations in most Eastern European countries; and RSL Communications, which provides telecom services in those same countries.

Bloomberg

CME started out in what was then Czechoslovakia, but its big step-up came in 1995, when it entered the Romanian market through a partnership with MediaPro, one of the largest media groups in the country – which owns a number of entertainment and news channels, and the country’s largest movie and film production company, along with radio stations, newspapers and the MediaFax news agency.

CME was founded by Adrian Srbu, who started out as a filmmaker and knew how to make use of business opportunities that arose after the fall of the Iron Curtain. His Pro TV channel went on the air in 1993 and quickly became the market leader, and still is. For 22 years Srbu was considered the most powerful man in the Romanian media – with the ability to “crown prime ministers” in Romania – until he was arrested early this year on charges of tax evasion, money laundering and embezzlement.

Until the world financial crisis of 2008, CME was considered a major success, and at its peak was traded on the Nasdaq (and the Prague stock exchange) at a market cap of over $16 billion. Lauder, who effectively controlled the company and served as chairman, led the empire of 33 commercial television stations broadcasting news, sport and entertainment in Romania, Slovakia, Bulgaria, Croatia, Slovenia and the Czech Republic. In 2009, CME bought full ownership of MediaPro from Srbu, who received $10 million in return as well as a shares in CME and the management of the entire group.

“Srbu was a television professional, but his mentality was far from the American [mentality] or even the Israeli one,” said a former senior executive in Channel 10.

“Lauder, who didn’t understand too much about television, brought him to Channel 10 a few times in order for him to examine [for Lauder] the channel’s business plan. It drove Lauder crazy. He didn’t understand how his Romanian partner managed to make a lot of money from television, but his Channel 10 continued to lose large amounts of money. Lauder wanted for us to learn from the Romanians how to make television cheaply, and even flew the entire board of Channel 10 to Romania and held a meeting there. He boasted a lot about his Romanian stations and wanted us to be like them.”

“At first Srbu couldn’t understand why we were investing so much money in productions,” the former Channel 10 executive continued. “He tried to show us how it was possible to make television cheaply, but after he understood that we were required by the regulator to spend a certain amount of money on [local] productions, he gave up and said we had no chance of success.”

“Srbu managed a number of channels in Romania at the same time and succeeded in creating synergy between them. The budget Channel 10 spent on news seemed excessive to him, as well as the salaries [of the stars]. In Romania he did not pay much and did not base [the stations] ‘talents.’”

Srbu managed to win over Lauder with his charm; Lauder is described as being quick to give his trust to people who do not always have his best interest in mind. As long as Lauder was the main shareholder in CME, Srbu had a free hand to run the company according to the ethical codes accepted at that time in Romania – or in other words, Srbu advanced commercial, political and his personal interests.

Lauder, who knew the accepted practices in Romania, was unaware of this, or maybe preferred to ignore it. But in 2009, as a result of the problems CME ran into after the global financial crisis, Lauder was forced to sell off part of his holdings in CME to American cable giant Time Warner, which bought a 31% share of the company for $241.5 million. By July 2012, Time Warner had invested $330 million and upped its share of CME to 49.9% – and was on its way to take it over.

An attempt to bribe the prime minister?

As Time Warner’s power on the board of directors grew, Srbu’s position weakened, despite Lauder’s protection. Time Warner began to understand that CME’s operating methods were inappropriate for a global American corporation, and commenced an internal audit – apparently against Lauder’s wishes. It is not clear what the fate of this internal examination was, but after it was completed, Srbu decided to resign at the end of August 2013, only four months after his contract as CEO was extended by three years.

In May 2014, CME announced that Lauder too was leaving, and so ended the 20-year period that Lauder and Srbu controlled the company.

At the time he left CME, the speculation was that Lauder’s leaving was related to the lack of business success of the company, which had caused the share to lose 90% of its value over the last five years. But it seems that the true reason for the shake-up that led to Lauder’s leaving came out only two months later, in July 2014, when Romanian Prime Minister Victor Ponta openly accused Srbu of trying to bribe him with the goal of preventing an investigation being conducted against MediaPro, CME’s Romanian subsidiary. Ponta claimed that he had not agreed to halt the investigation, which led to a personal attack against him from MediaPro’s news organizations.

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In December 2014, 11 employees of MediaPro were arrested, and in February 2015 Srbu was arrested too. The charges filed in the Romanian court state that MediaPro employees, including Srbu, allegedly evaded $1.4 million in taxes, and they were charged with money laundering of $5.8 million, as well as a $3.3-million act of fraud. The employees were charged with inflating expenses by using fake receipts, and pocketing the money for themselves. After a few months in jail, Srbu was released in April to house arrest.

At the time of his arrest, Srbu attacked Ponta and said his arrest was an attempt to silence his media outlets, and in particular the leading website Gandul.info and the financial newspaper Ziarul, which are part of the MediaFax group. In investigative reports published over the past year in the Romanian media, it was claimed that Lauder knew of the illegal actions attributed to Srbu but chose to ignore them – because all the crimes Srbu is charged with happened while Lauder was chairman of CME. But the Romanian authorities have never claimed that Lauder was involved, and he has never been questioned on the matter.

Failed bet on Hungarian casino

In January 2012, a relatively unknown political commentator appeared on one of Channel 10’s morning shows. He was invited to analyze whether Netanyahu had made a mistake by offering to guarantee former Prime Minister Ehud Barak a safe seat on Likud’s Knesset slate. The unknown commentator, Yoav Blum, was introduced as a member of the Likud Central Committee.

Blum explained on the show to Dov Gilhar, the host, and the viewers of Channel 10 – which was still under Lauder’s control at the time – that “this is not the question. The question is what is good for the Israeli people and what should happen,” and in doing so represented Netanyahu’s position faithfully.

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Immediately after the show Blum returned to his anonymity. Senior executives at Channel 10 do not remember the specific incident today, but do say that the breakfast programs – and especially the Friday morning ones – were used by Lauder’s people to provide favors to those they wanted to be on their good side.

“These programs are like the back pages in the newspaper, those by the death notices,” said a former Channel 10 senior executive.

This very same Blum is actually a business partner of Lauder. The connection between the two was made because of both their political activities and links to Netanyahu. Blum is known within Likud as part of the ideological right wing, a true-born member of Menachem Begin’s Herut party, and a former chairman of the world leadership of Beitar, the Revisionist Zionist youth movement affiliated with Likud. Since 2006, Blum has been the Likud representative to the World Jewish Congress, headed by Lauder since 2007. Blum has come out in defense of Netanyahu a number of times in the past, but for the past five years, at least, he has kept a low political profile and concentrated on his business interests.

Blum was not the first business partner Lauder has found among Netanyahu’s circles. In 1993, Lauder met – through Netanyahu’s mediation – Itzhak Fisher, who was at the time the treasurer for Netanyahu’s campaign for the leadership of Likud. A year later, Fisher and Lauder established RSL Communications, which bid in a number of privatization tenders of communications companies in Eastern Europe.

Fisher managed to make a lot of money from RSL’s activities – much of which was based, among other things, on Lauder’s connections; and in 2007, Fisher joined as an investor in the grandiose project planned by Lauder, Blum and other investors in Hungary named King’s City Casino. The project included 175 acres of huge hotels, botanical gardens, amusement parks and an enormous mega-casino with 1,500 slot machines and 100 betting tables – at a total investment of some $1 billion.

The investors promised the Hungarian government 3,500 new jobs, and Blum, who also has Hungarian citizenship and is known there as Joav Blum, led the project on the part of the investors.

In 2007, Blum moved to Hungary and started promoting the casino plan. Lauder and Blum met with the Hungarian interior minister, who supported the project and started helping them promote the casino plan. The minister also appointed a contact person to work with both the government and the casino backers.

After enlisting government support, Blum bought up agricultural land near the town of Albertirsa, about a 50-minute drive from Budapest – but after consultations the investors decided in early 2008 that the region was not appropriate for the project, and instead decided to build the casino on the shore of Lake Velence, which is only a 40-minute drive from Budapest.

Since they had already bought the property at Albertirsa, Blum, Fisher, Lauder and the other investors in the project tried to fix their mistake using their political connections and ability to move Hungarian government officials and regulators to make a land swap: They would return the land they bought near Albertirsa to the Hungarian lands authority, Hungarian National Asset Management, and in return receive state-owned land on the shores of Lake Velence in western Hungary.

For as long as Ferenc Gyurcsány remained the prime minister of Hungary, the approvals sped ahead. In May 2008, a meeting was held between Gyurcsány, the Hungarian finance minister and the investors. Immediately after this meeting Blum began to work on the land swap with the government.

The main problem was the ban in Hungarian law against selling state land without a public tender. Blum and the lands authority found a solution: They claimed that the new M4 highway was planned to be constructed on the land purchased at Albertirsa, so the investors needed to be compensated through a land swap without a tender, out of the “public interest.”

New prime minister changes everything

In July 2008, it was decided that because of the price difference between the plots of land involved, Blum and the investors would have to pay the Hungarian government 1.2 million euros, and a committee of the authority voted unanimously at the end of that month to approve the land swap. In December 2008, Blum and his associates received the land officially.

But the group’s troubles started when Gyurcsány resigned as prime minister in April 2009. Claims against the deal started immediately – first from opposition members of the National Assembly, and later in the press, saying the land swap was illegal and was done because of Gyurcsány’s involvement. A few months later the investigations started, which focused on two issues: the value of the land given the investors, and the legality of granting the land without a tender. As long as the investigations were conducted internally by the Hungarian finance ministry and the lands authority, nothing exceptional was discovered. But in August 2009 the Hungarian state ombudsman released a harsh report in which he claimed that the state should cancel the land-swap agreement because it was illegal. The ombudsman said the road, which was the basis for approving the deal without a tender, would cover only 5.6% of the investors’ land, so it did not justify awarding the land without a tender.

During the Hungarian elections in early 2010, the issue of the casino was exploited by the right-wing opposition headed by current Prime Minister Viktor Orbán to attack the socialist Gyurcsány. In the months before the elections in Hungary in 2010, right-wing newspapers there published articles against Lauder’s grandiose casino project, and some of the headlines hinted at anti-Semitism, such as “The Jewish invasion of Lake Velence” and “The Jewish occupation,” while Blum was called “The Israeli criminal.”

In February 2010, Lauder met with Orbán and asked him to help restrain the right-wing press. Lauder also presented the casino project to Orbán and asked for his support. Orbán said he would look into the matter. In testimony given later by Lauder, he said he met with Orbán after it became clear to him that Orbán was expected to be elected the next prime minister.

And in April 2010 that is what happened. Orbán entered the prime minister’s office and took over from an interim government. One of his first steps was to appoint a team dedicated to the investigation of the land-swap deal concerning the casino.

In April 2011, the Hungarian state prosecutor asked to lift Gyurcsány’s immunity in order to enable the prosecution to question him about suspicions regarding his involvement in approving the land deal. In July 2012 the prosecution decided not to continue with this investigation because of a lack of evidence.

Political analysts in Hungary claimed that the decision to close the investigation was partially the result of political considerations by Orbán. But the closing of the case against Gyurcsány did not help Lauder, Blum and their partners. At the end of a long legal process, the Hungarian supreme court, the Kúria, ruled in 2012 that the land-swap agreement was illegal and void, and in practice this ruling put a final end to the casino project.

But this was not the end of the story. Lauder, Blum et al. did not give up on getting their money back, even if the casino would never be built, and sued the Hungarian government for $337 million in a complaint filed with the International Center for Settlement of Investment Disputes (ICSID), an international business arbitration institution in Washington, D.C.

During the proceedings against the Hungarian government, Lauder published an opinion piece in April 2013 in the German newspaper Süddeutsche Zeitung, published in Munich, in which he attacked Orbán and said the prime minister had “lost his political compass.”

“Since Viktor Orbán won a second term in 2010, Hungary has made international headlines for being a xenophobic and increasingly anti-Semitic country, and Orbán the fighter for democracy and civil rights seems to have turned into an ideologue for Hungarian nationalism that uses his two-thirds parliamentary majority to dismantle some of his own achievements of two decades ago,” wrote Lauder.

Later in the article, Lauder claimed that Orbán is splitting the Hungarian people and awakening prejudices against minorities. “Although he often says that he wants to unite all strands of Hungarian society, Mr. Orbán polarizes. In a subliminal message to Jobbik supporters, he and his party not only seek to revive ‘national symbols,’ they also try to influence and readjust certain cultural policies in order to change public opinion. In this process, many forms of prejudice against minorities not deemed to be part of the Hungarian nation are re-emerging, and sometimes these prejudices turn into hatred which manifests itself publicly. The number of anti-Semitic or anti-Roma statements increased dramatically in recent years, and some of them have come from senior members of the prime minister’s party or his government.”

It is very possible that Lauder’s complaints against the Hungarian prime minister are correct and well founded, but only a small number of those who read the article knew that at the same time Lauder, the chairman of the World Jewish Congress, was conducting a major legal battle over business issues against Orbán and the Hungarian government.

In October 2014, the ICSID arbitration court ruled against Lauder and his partners, deciding that the Hungarian government acted within its rights under international trade agreements because the land exchanges were not conducted legally.

Despite numerous approaches to representatives in Israel of Lauder and Blum, no response had reached Haaretz by press time.