AOL Veteran Hopes to Lead Company Back to the Future

Times Staff Writer

Long before America Online's problems were apparent to most, veteran AOL executive Ted Leonsis knew something was terribly wrong at the company he helped create.

By the fall of 2001, Leonsis -- a former AOL president whose role had been marginalized over the years -- was convinced that the media giant was on the wrong track, too focused on cutting lucrative deals with business partners and not doing enough to expand into broadband and serve customers. AOL needed to admit it had lost its way and dramatically change course, Leonsis concluded in an impassioned 10-page memo that he fired off to AOL Time Warner Inc. Chairman Steve Case and co-Chief Operating Officer Robert Pittman, encouraging both men to bridge their differences and work together.

"The organization's culture and core objectives need to be reset," Leonsis wrote in November 2001.

It would be several months before AOL Time Warner leaders realized Leonsis was right and confronted the problem head-on. Pittman is gone and Case has agreed to resign in May. Last month, America Online announced a turnaround plan that in large part mirrors Leonsis' advice.

Leonsis' memo has propelled him back to center stage at the Internet unit, an unexpected comeback for the 46-year-old vice chairman, who had faded into the background upon Pittman's arrival in 1996.

Now Leonsis is back in charge of the interactive services division, including product development, one of his favorite areas. Newly installed America Online Chief Executive Jonathan Miller tapped Leonsis as one of his key strategists to implement the turnaround plan. And Leonsis has emerged as a critical corporate ambassador, smoothing the ties between new AOL leaders and longtime managers.

"He's been remarkably prescient," Miller said. "Ted is one of those people who really understands where things are headed. A big part of what I've set out to do is harness some of his ideas."

Leonsis says he harbors no ill feelings from being nudged out of day-to-day management in the 1990s and is thrilled to be back.

"I don't have ego about it, but I do feel self-satisfaction," Leonsis said in a recent interview. "I was an architect of the old strategy and now I feel like I've been one of the architects of the new strategy. I won't say it's like riding a bicycle, but getting back to basics has been pretty easy."

Leonsis said his time behind the scenes gave him a fresh perspective on the corporate rat race and a greater sense of independence.

After some midlife soul-searching, Leonsis in 1999 bought stakes in two struggling sports franchises -- the Washington Capitals hockey team and the Washington Wizards basketball team. His aggressive efforts to improve the teams -- he brought in basketball legend Michael Jordan as a partner in the Wizards and lured Czech hockey star Jaromir Jagr to the Capitals -- have turned Leonsis into a local celebrity, a role he clearly relishes.

So no matter what happens at America Online's Dulles headquarters, Leonsis knows that at the end of the day he can retreat to his luxury box seat at MCI Center and experience the kind of rush no boardroom can provide.

"Tomorrow night I can go to my arena, where there will be 20,000 people," Leonsis said with a grin. "After we score a goal, the camera will go on me and I can stand up, raise my arms and 20,000 people will stand up and cheer.... I guess we all get our egos assuaged differently."

He says he no longer cares about job titles, organizational charts or reporting schemes.

"I'm an ideal employee," he said. "I don't need to be here. I don't need the money. I don't need the ego. I'm here for the sincerest of reasons. There's something very liberating about that."

Leonsis made an immediate impression on his new boss. On Miller's first day, Leonsis took him out for dinner and peppered him with briefing memos and outlines on various issues, Miller recalls. Leonsis sent a stream of managers to Miller's office to give the new CEO quick AOL history lessons to bring him up to speed.

"He really wanted the new guy to have the benefit of his perspective," Miller recalled.

Their quick bonding helped Miller gain the confidence of other AOL managers, who had endured a year of management shake-ups and remained intensely loyal to Leonsis.

"Ted has come through the fire at AOL. He's the keeper of the old flame," said Danny Krifcher, senior vice president of advanced services at AOL. "To see him having a great bond with the new CEO says to people that the flame is in good hands."

At large staff meetings, Leonsis is known for spreading his energy and optimism to the troops.

At one recent strategy session, Leonsis turned the meeting into a revival-like rally, calling upon individual managers to stand up, raise their hands and vow to do a better job. "Are you going to stamp out spam!" Leonsis asked one manager. "Will you make us the best in programming to teens!" he shouted at another.

"He didn't plan on calling on people like that," said Krifcher, who has worked for Leonsis since 1994. "But he got on a roll and read the crowd. He gets people so enthusiastic."

Leonsis attributes his energy to two factors: being the only child of Greek immigrants and a near-death experience that caused him to reevaluate his priorities.

Raised in Brooklyn and Massachusetts, Leonsis says his working-class parents expected a lot from their only son. While his roommates at Georgetown University spent weekends lounging on the couch with their girlfriends, Leonsis was selling shoes part-time, interning on Capitol Hill and running a small company that peddled red-white-and-blue snow cones during the nation's bicentennial celebration in 1976.

His entrepreneurial drive and geeky interest in computers paid off when he sold his first company at age 25 for $15 million.

Leonsis thought he was on top of the world. But a year later, in 1983, he found himself on a malfunctioning Eastern Airlines plane that was preparing to crash-land.

"When you are going down, there are no heroes," Leonsis recalled. "I promised that if I lived, I would play offense with the rest of my life. I would do good things."

The plane came down safely, and shortly thereafter Leonsis penned a list of "101 Things to Do Before I Die."

He's checked off 66 tasks so far, including getting married, having children, buying a sports franchise and appearing on a magazine cover. Remaining items include winning an Oscar, traveling in outer space, playing one-on-one against Michael Jordan (a possibility now that Jordan plays for the Wizards) and accumulating a net worth of $1 billion.

"It sounds goofy, but [the list] really helps you structure and manage your life," Leonsis said.

Like other AOL executives, Leonsis' fortune has been trimmed by the stock's fall from above $80 a share in 2000 to below $15 in recent weeks. He's still sitting on nearly 8 million stock options. But he made some well-timed sales of $120 million in stock in late 1999 and early 2000 to help finance the sports franchise deals.

"I made more money than I ever thought possible," he said. "How could I ever be mad or unhappy? I'm living my dreams. It's exceeded my dreams."

By contrast, AOL Time Warner had a harder time coping with its wealth and success. AOL Time Warner CEO Richard Parsons and others now acknowledge that the company got cocky and arrogant after the merger, losing sight of customers.

During the dot-com heyday, AOL's stock price was soaring. Businesses were clamoring to cut deals with AOL and reach the company's fast-growing subscriber base.

"I was at several meetings where [would-be partners] came in and put a check for $100 million on the table," Leonsis said. But he grew concerned when he noticed that deal makers and marketing gurus were the new stars inside the company, while product innovators slipped down the corporate food chain.

Now some of the more creative, aggressive marketing deals have come back to haunt AOL Time Warner. The Justice Department and Securities and Exchange Commission are looking into possible accounting fraud. The company said last year that it improperly booked about $190 million in ad revenue.

Leonsis' exile in the late 1990s and early 2000s may prove to be an advantage, since he appears to carry less baggage than other AOL Time Warner executives, who bore the brunt of the blame. "I wasn't involved in the deal side of the business," Leonsis said.

Pittman, by contrast, was forced out last summer, and several other Internet executives have left or been reassigned.

Class-action attorneys for burned investors are still hoping to link Pittman, Case and other AOL executives, including Leonsis and fellow America Online Vice Chairman Joseph Ripp, to some of the accounting scandals, particularly one involving Westlake Village-based online real estate company Homestore Inc.

Leonsis raised eyebrows last fall when it was revealed that he had hired Eric Keller, a former AOL deal maker who was fired in 2001 for allegedly helping companies such as Homestore inflate their revenue through AOL marketing deals. Leonsis also served on the board of Creative Planet, an entertainment software firm, with former Homestore chief Stuart Wolff, though Leonsis says he doesn't remember Wolff.

An attorney for Keller declined to comment.

Leonsis said he hired Keller as a consultant for a real estate deal involving the hockey team but terminated their professional relationship in August on the advice of an AOL attorney. He said he didn't realize the circumstances of Keller's departure -- even though it was widely reported at the time -- and was just trying to help out a former employee.

"I haven't been involved [in Homestore] at all," Leonsis said. "I'm not concerned about it. You know what? Accuse me of being a good guy."

These days not much can dampen his spirits. Leonsis already is working on new products and features to be introduced with AOL 9.0 next year. And he's happy to be putting in 60-plus-hour weeks again, just like the old days when he helped turn AOL into the nation's biggest Internet service provider.

"That was when I really loved it the most," he said. "For me, this is an act of love. It's important that we fix this. If we fix it, it will secure the legacy of what we've built."

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