Published April 30, 2013
SEATTLE – Paul Allen, the lesser known co-founder of Microsoft Corp, has struggled for decades to make his mark as a business mogul beyond the software company he started with Bill Gates.
Since he quit Microsoft in 1983, the quiet Seattle native has lost billions of dollars on ill-conceived or mistimed technology investments, and he has been mocked as a juvenile playboy manqu�� for spending lavishly on giant yachts and off-beat projects like a Frank Gehry-designed rock museum.
But in recent years, Allen's ventures in decidedly low-tech sectors ��� sports teams, commercial real estate and energy pipelines ��� have come to look prescient.
Together with a new round of tech investments and an ambitious philanthropy program, they may yet establish Allen as much more than Gates' lucky junior partner.
Allen's NBA Portland Trail Blazers and NFL Seattle Seahawks, both purchased years ago for what appeared to be non-business reasons, are now worth many times what he paid for them. Even his part-ownership of the Seattle Sounders soccer team, which draws more fans than any other franchise in its league, is looking like a good bet.
At the same time, Allen has all but single-handedly transformed the once-shabby South Lake Union district near downtown Seattle into the Pacific Northwest's hippest tech outpost, anchored by Amazon.com Inc.
And a recent foray into the energy business yielded a $2.25 billion return from a $200 million investment in Plains All American Pipeline.
These wins are changing the perception of the shy 60-year-old, a two-time cancer survivor who rarely appears in public.
"He is under-appreciated in Seattle," said David Brewster, long-time civic leader, publisher of local news website Crosscut.com and founder of the Seattle Weekly newspaper. "He's remote and reclusive. There's too much Howard Hughes in the way he behaves for Seattle truly to appreciate a lot of the good that he does."
Allen was not available for an interview.
The owner of 42 U.S. patents, Allen likes to cast himself as a tech visionary who saw the future of connected computing long before the Internet. His 2011 memoir, "Idea Man," recounts plans from the late 1970s to create and invest in a computerized society linked by phone lines and fiber optic cables, which he later christened 'the Wired World'.
Yet his post-Microsoft career doesn't offer much evidence to support that self-perception. Allen lost $8 billion in the cable television industry, chiefly with a catastrophic bet on Charter Communications. His pre-internet communications and computing firms Metricom, Asymetrix and SkyPix were all costly disasters.
His Interval Research idea lab, designed to emulate the famously inventive Xerox PARC, left nothing behind but $300 million in losses and a lengthy patent lawsuit. Even when he made money, as he did when he sold a 25 percent stake in America Online in 1994, he looked silly for getting out too early. His shares would have been worth $40 billion at the height of the tech stock boom.
Despite those setbacks, Allen is still one of the world's richest people, with a fortune that Forbes magazine pegs at $15 billion. And he may finally have found his calling as an old-style civic investor, motivated only in part by the money.
Allen's first big splurge after Microsoft's 1986 initial public offering made him a multi-millionaire was the Portland Trail Blazers basketball team. An ardent fan and sports' numbers geek - but not much of a player - Allen paid $65 million for the team, using a loan backed by Microsoft shares.
After investing more than $150 million in the city's Rose Garden arena, which he now owns outright, Allen's franchise is worth $457 million, according to Forbes.
A decade later, Allen scooped up the Seattle Seahawks football team for $194 million, responding to a direct appeal from city officials and then-Washington governor Gary Locke to prevent the team from moving to Southern California.
"If I entered the NBA out of passion, I was called to the National Football League out of civic duty," Allen says in his memoir.
Allen kicked in another $140 million to help build one of the country's best sports stadiums - and is now sitting on a team estimated to be worth more than $1 billion, buoyed by the massive sums television networks are willing to pay for live sports.
Making money off of football's transformation into America's top spectator sport has largely been a matter of dumb luck, said Michael Cramer, director of the program in sports and media at the University of Texas. But he gives Allen his due nonetheless.
"All the owners are lucky. None of them 15 years ago would have believed the TV contracts are what they are. Not one," said Cramer. "But they all felt comfortable that that NFL revenue stream was solid, so you've got to give him credit for that."
Allen is perceived as the "savior" of the Seahawks, said Larry Brown, a 30-year, season-ticket holder who works for the IAM union representing hourly workers at Boeing Co's plants.
Early doubts about the team being a rich man's plaything were swept away during the victorious NFC Championship game in 2005, the first such win in the Seahawks' history. Allen raised the 12th man flag in the stadium, a symbol of Seattle's famously vocal hometown crowd.
"People went nuts," said Brown. "They see him as committed to winning, and that's ultimately what a sports fan wants."
The Blazers have been less successful on the court. Still, at a time when smaller cities risk losing their franchises - as Seattle did a few years ago and Sacramento might in the very near future ��� few are complaining about Allen.
"This is not an owner that's going to say, I'm going to sell the team tomorrow," said David M. Carter, principal at the Sports Business Group advisory firm. "There's more of a steady hand there."
Allen's other big success is still gathering pace. His Vulcan Inc investment vehicle has led the transformation of Seattle's South Lake Union from a rotting patchwork of light industry and vice to a gleaming high-tech center.
Allen first gave $30 million to a non-profit in the early 1990s for green space in the area. After Seattle voters twice rejected taxes to fund the project, Allen went it alone, shifting the vision toward a thriving business district.
Today, the half-square-mile district buzzes with about 35,000 workers, most from Amazon, whose sprawling campus dominates the main drag.
Vulcan representatives say Allen has spent about $2.5 billion on South Lake Union since 2004. Amazon arrived as a tenant in the spring of 2010, and two years later bought 11 buildings for $1.16 billion - the largest U.S. commercial real estate deal of 2012.
"It's a high price for the West Coast" said Dan Fasulo, managing director at Real Capital Analytics, a real estate advisory firm. "The only other markets that even come close (to matching New York prices) are San Francisco, some parts of Silicon Valley and west L.A."
The surge in SLU real estate values has helped the broader Seattle property market, which grew about 11 percent between 2004 and 2014, and cushioned the blow of the real estate crash of 2007-2008.
After the Amazon sale and several smaller ones, Vulcan values its total real estate portfolio - made up predominantly of SLU holdings - at about $1.5 billion. That means it has already broken even on its investment and has pocketed hundreds of millions of dollars in rents over the past few years. And Vulcan still owns 43 of its original 60 acres in the area.
"We've taken some chips off the table, but we're going to be there a long time. Decades," said Paul Ghaffari, chief investment officer for Vulcan Capital.
BACK TO THE FUTURE
At the height of the tech stock bubble in 2000, Allen had stakes in more than 140 firms, most of which ended up worthless. In 2003, Allen says he drank some "castor oil" and pruned his portfolio down to about 40 investments, firing his main adviser Bill Savoy. Since then, Allen has taken on more professional advisers such as Ghaffari, a former portfolio manager at Soros Fund Management and Morgan Stanley.
Recent investments include Audience Inc, which makes audio software for smartphones and went public in May 2012; online real estate broker Redfin; and Decide.com, which uses aggregated data to help tech consumers shop wisely.
These investments are handled by Vulcan Capital - a combination of private equity firm and money manager for Allen's funds - which just set up an office in Silicon Valley.
Vulcan employs about 200 people, but Allen gets directly involved in detail when the mood takes him.
"He'll ping us with an idea and it'll prompt a search to see if it's an investable idea. Or we go to him with ideas, it really works both ways," said Ghaffari.
On the philanthropic side, Allen's sister Jo Lynn - better known as Jody - is co-founder and president of the Paul G. Allen Family Foundation. Together, people close to Allen say, the goal is for both the for-profit and non-profit activities to benefit Seattle and the Pacific Northwest.
"Bill Gates' public image is better than Paul Allen's -- Allen can come off as a reclusive man who spends too much time on his huge yacht," said Brewster at Crosscut. "But if you look at the benefit locally, Allen's foundation is the leader."
(Reporting by Bill Rigby. Editing by Jonathan Weber, Tiffany Wu, Leslie Gevirtz)