Report: Chesapeake CEO Aubrey McClendon leveraged Thunder stake for loans
Chesapeake Energy Corp. CEO Aubrey McClendon watches the Oklahoma City Thunder against the Los Angeles Lakers on May 14. (Photo by Bryan Terry, The Oklahoman)
Hours after the Oklahoma City Thunder clinched its first-ever berth in the NBA Finals comes a report that one of the team’s co-owners has used his stake in the team for two bank loans.
The Reuters report is another in a line of stories about how Aubrey McClendon has used creative financing to fund his company and personal investments. It indicates McClendon has built a “lavish but leveraged lifestyle” by mixing the two more than most shareholders may realize, according to Reuters’ review of public records and hundreds of pages of internal Chesapeake documents.
The company and McClendon’s spokesman declined to comment in the latest report, according to Reuters.
The Chesapeake Energy Corp. co-founder has been under increasing scrutiny since Reuters reported April 18 that he had used his personal stake in company wells to secure up to $1.1 billion in loans. Some of those funds came from a private equity firm that also had invested in Chesapeake, raising questions about a possible conflict of interest.
A subsequent Reuters report indicated McClendon had run a lucrative hedge fund inside the company with former partner Tom Ward, who is now CEO of SandRidge Energy Inc.
The company has been largely silent about the questions raised by those reports, especially as shareholder lawsuits against its board mounted. The tally has grown to at least 15 since the initial Reuters report.
One of the issues in those lawsuits is how much information Chesapeake should disclose to its shareholders.
Its involvement with the Thunder has been well documented, but McClendon’s 2009 and 2010 loans against future proceeds from his stake in the team have not been disclosed.
Chesapeake has invested in the Thunder as well, as one of the team’s founding sponsors since it arrived in Oklahoma City in 2008.
That relationship had been laid out in a succession of one-year contracts that covered advertising, game tickets and use of a suite at the team’s downtown Oklahoma City arena until last year, when Chesapeake signed a 12-year sponsorship agreement with the team, according to the company’s 2012 proxy statement.
Chesapeake paid about $1.9 million pursuant to that agreement last year, a figure reduced by the lockout, but the deal calls for the company to pay an average annual fee of $3 million a year.
The company paid about $4.6 million for playoff tickets last season and regular season tickets this year. It also has committed to buying playoff tickets and other sponsorship benefits during this year’s playoffs, according to the proxy statement.
Chesapeake also an annual fee over the next dozen years for naming rights to the arena now known as Chesapeake Energy Arena. The company paid $2.9 million for 2011-2012 season, but that figure will escalate to $4.1 million a year by 2023.
The company expects the naming rights deal to “provide Chesapeake with enhanced public awareness through recognition locally, nationally and internationally,” according to the proxy.
McClendon will not benefit from the company’s investment in the team he co-owns because he will donate his share of the proceeds from those deals to Oklahoma schools.
In January, Forbes pegged the Thunder’s value at $348 million, 15th highest in the NBA, That is about about $45 million below the NBA average and well behind the $900 million Los Angeles Lakers, the league’s most valuable team.
McClendon’s 19.2 stake in Thunder is worth nearly $67 million, based on that valuation.
That is only a fraction of what McClendon owes on loans to finance his obligation’s under Chesapeake’s controversial Founder Well Participation Program, which allows him to buy a stake in every well the company drills.
McClendon and his affiliates owed $846 million at the end of 2o11 on loans related to the well program, he disclosed April 26. He estimated his 2.5 percent share of oil and natural gas production from Chesapeake’s wells was worth $852 million at that time.
As details of McClendon’s personal finances have emerged, Chesapeake’s board has begun a search to replace him as chairman. The company also will end McClendon’s well participation program early.
Continued questions from shareholders –including the two largest investors in the company — spurred this week’s announcement that Chesapeake would replace four of its nine-member board later this month.
The new directors will be appointed by the company’s largest shareholders, Southeastern Asset Management and activist billionaire Carl Icahn.
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Comments
The more we hear about this whole Aubrey deal makes me think that something smells fishy. Appears that this “high roller” has built his house upon the sand (hadn’t thought of that song since my vacation bible school days).
I could give a rip about him, but now you’re jacking with OUR OKC THUNDER?
Now he’s gone from struggling to meddling. Best wishes to all the CHK employees. Hang in there.
Mr Aubrey – time to get your “stuff” together.
J, I knew a guy that did the same thing at a feed store that I worked at when I was in college. He owed everybody in town and he floated money all over town to stay afloat. I don’t see the problem with what McClendon was doing if he owned the equity, it shouldn’t matter if he borrowed against it. Any bank anywhere will require collateral for a loan, and your collateral is your ownership in whatever you put up for collateral. He either owned the equity or he didn’t. If he didn’t it is fraud.
All i am saying is that you better treat our boys right, treat your stock-holders right, treat your family right and fly straight.
Jay Marks- why dont you investigate the Reuter sources? Why do they suddenly have inside information on Chesapeake? Why did Carl Icahn’s group start taking a stronger position right after the article hits. Smells like the usual Wall St gaming for profits. That should be your story line.
From Above Article: “The company paid about $4.6 million for playoff tickets last season and regular season tickets this year. It also has committed to buying playoff tickets and other sponsorship benefits during this year’s playoffs, according to the proxy statement”
Really, 4.6 Million in Tickets? How many tickets could that actually be? Is he using the stake he has as an owner in the Thunder organization to borrow money to purchase 4.6 Million in Thunder tickets to give them away to his employees for free? Sounds like the lavish lifestyle he’s living will come to and end soon don’t you think?
Did he break any laws? No.
Did he profit from being a savvy businessman? Yes and no but no businessman bats 1.000 and it’s a certainty he’s lost money in some investments.
Does Reuters think they’re on to something? Yes, but that doesn’t mean it will pan out and in this country we have the legal presumption and the obligation as fair-minded people to believe that people are innocent until proved otherwise. Innuendo means nothing.
That’s the extent of things.
Why is it that, no one is asking the question, why OKC’s largest natural resources exploration company is not as profitable as others in the area? When the CHK trolls come on here it’s always about, “why do people want to bash successful people in the OKC area”. Fact of the matter is, of CHK was successful and profitable then these types of stories would not be published on a weekly basis. Where there is smoke there is fire and a large smoke plume is emanating from 63rd and Western.
People like Aubrey are running the country and they are leveraging the entire planet…$$$$$$$$$$$$$$$$$$$444
[...] down the former chairman of, natural gas company, Chesapeake Energy Corporation. The publication, Power Play, billed as -Staying up on Oklahoma’s booming energy sector, even headlined: Chesapeake CEO [...]
Let’s see: he steals a team, now he’s under scrutiny for potentially defrauding shareholders, anyone see a pattern here?
Professional sports teams have very stringent requirements for owners… I suspect it is against the rules to gamble with your ownership interest.
In college I worked as the front office manager for a grocery store. Every day this man would come in and cash a personal check for $300.00. I had to cash it for him as the store manager ok’d it. He had to cash it each day and go deposit the money at his bank to cover the check from the day before. Seems to me that Aubrey has found a way to do this, but on a much bigger scale. I guess it works as long as you can get that next check cashed and in the bank before the prior one hits. But what will happen if the store suddenly closes?