CHICAGO, August 25, 2014 — WME CEO Ari Emanuel stands to make a billion dollars or more from his Hollywood agency’s investment in Uber, experts say. With his brother, Mayor Rahm Emanuel’s direct involvement in passing Uber-friendly ride-share legislation in Chicago and the resulting impact on the company’s valuation, the mega dollar amount deserves serious scrutiny from the media not a pass.
Back in April, when Rahmbo was questioned over the conflict-of-interest questions raised by his brother’s stake in Uber, he was undeniably testy:
“He [Ari] would benefit before there was regulation. Now we’re putting regulations in to make sure there’s a level playing field and not advantaged against regulated industry. Just the opposite. Let me say this about Ari: He doesn’t need his older brother to get rich. Think of it as me getting back at him! Okay?” Emanuel told WLS political reporter Bill Cameron at the time.
When questioned, a WME spokesman confirmed the agency’s stake in Uber but would not confirm the size of the investment.
So how much money is really involved here?
A source who has seen Uber’s offering says that WME’s early investment was probably in the $5-$10 million range. In initial investor rounds, companies like Uber raise in tranches of $5-10 million or multiples thereof. According to public sources, Ari Emanuel’s investment was made during Uber’s second investment round in December 2011, which was three months after the company began its Chicago operations and ten months after Rahm was elected Mayor of Chicago.
At the time, Uber was valued at $300 million.
But just days after favorable ride-share legislation was passed by the Chicago City Council in May, the company announced a $1.2 billion raise from institutional investors like Fidelity and a stunning $18.2 billion valuation. The valuation was based only on top line revenue.
As an early investor, the value of WME’s asset is now approximately 60x its original investment. Once Uber goes public, WME’s investment could be as much as 100x its original investment and or more, sources say.
That makes WME’s current investment in Uber worth, at minimum, between $300 million and $600 million. At 100x its original value, WME’s investment could be worth as much as $1 billion or more.
According to Fortune, investors in Uber’s first round “saw their investments grow to between 400x and 600x in that round that valued Uber at $3.5 billion. At $17 billion, they’re worth 2,000X.”
So did the prospect of his brother’s billion dollar Uber payday improperly influence Mayor Rahm Emanuel?
Ride-sharing companies like Uber and Lyft operated in Chicago with no regulation – and little to no penalty until the passage of Emanuel’s Chicago ordinance in May 2014.
Taxi industry sources say that Emanuel’s Chicago ordinance only served to legitimize what many cab companies consider an “illegal cab service.” They contend UberX drivers still legally operate in Chicago without commercial insurance or chauffeur licenses in one of the country’s highly regulated markets for the cab industry.
Cab companies have filed a lawsuit accusing the City of Chicago of encouraging a “special class of unlicensed taxis” in violation of the law. Other suits around the country have been filed, including a Connecticut suit, which accuses Uber of racketeering.
So does the cab industry have a point?
The cab industry pays millions in commercial liability insurance for its drivers and vehicles – about $5,000 per vehicle. Uber does not.
Uber’s “excess” insurance does not “kick in” unless the driver had “proper insurance – a commercial insurance policy – to begin with. Consequently, UberX drivers may not be covered in the case of an accident.
Read more about Uber’s excess policy gaps here.
Some UberX drivers are even receiving notice of cancelled personal auto insurance policies.
The billion dollar numbers involved explain why Mayor Emanuel and other politicians around the country have allowed Uber to skirt long-standing taxi regulations. Last week, Uber added President Obama’s former adviser and campaign strategist David Plouffe to its team to help it win the high-stakes regulatory war around the country.
Cab companies argue that Uber has been granted a regulatory exception – an exception that has arguably given the company an unfair market advantage. The success of Uber’s business model appears to be hinged on its avoidance of commercial insurance liability compliance.
Insurance companies say the risks to the public of not having properly licensed and insured ride-share drivers on the road can no longer be ignored.
In D.C., new rules have been proposed requiring Uber and Lyft to buy insurance and put drivers through background checks and vehicle inspections. The rules won’t be voted on until later this year.
This morning, Gov. Pat Quinn buckled under the political pressure and vetoed HB 4075, which required ride-share drivers to have basic commercial insurance, a chauffeur’s license, and submit to a comprehensive police background check. The bill had bipartisan support in Illinois.
These requirements don’t seem unreasonable but Uber says they are.
Yes, Ari Emanuel’s billion dollar investment may make him and others Uber rich; but putting the public at risk – now that’s Uber stupid.