Tycoons and Monopolies IV: Noam Lanir and Stef Wertheimer 22.04.13

Tycoons and Monopolies IV: Noam Lanir and Stef Wertheimer 22.04.13

by

Howard Adelman

Israeli billionaires come in many varieties and types. Noam Lanir stands in contrast to Dan Gertler. First, he is a hi-tech billionaire. Though also in his forties, Lanir does not run a myriad of offshore companies; he focuses on a few engaged in marketing services – gambling, translation and medical tourism. He is the CEO of the Livermore Investment Group. (Empire Online) of which he is the major shareholder. Instead of coming from an observant background of a family involved in a traditional Jewish business – diamond cutting and sales – his father was an Israeli pilot and hero. In the Yom Kippur War, his father’s plane was shot down over Syria when Noam Lanir was only six years old; his father was captured, tortured and died in captivity.

Lanir served in the IDF pioneering in training for guiding pilotless aircraft. As indicated in my blogs on drones, such a technology is based on calculations of probabilities to forecast trajectories. Gambling is also about risk calculation. However, when he was discharged from the IDF, he first went into the club business. In 1997, at about the same time as Dan Gertler entered the DRC. Lanir entered the gambling realm by becoming the marketing manager for a lottery for the Association for the Well-Being of Israel’s Soldiers – Aguda Lemaan Hachayal. A charitable organization, it provides R&R for soldiers, recreation and sports facvilities, educational centres and programs, help for bereaved families of fallen soldiers and a host of programs for veterans, including scholarships and a variety of assistance programs for soldiers with disabilities. Lanir has remained very active and supportive of this charity as his wealth has grown.

After leaving his stint at Aguda Lemaan Hachayal, the following year he registered Empire Online (EO) in the Virgin Islands not as a gambling site itself, but as a site to host gambling sites run by others and undertake the marketing for them. Lanir does not operate in Israel or provide access to Israelis who want to gamble. Empire Online is more accurately depicted as an internet technology and marketing company specializing in hosting and promoting gamling sites than operating any gambling site itself.

By 2005, there were 186,000 gamblers using the site, 70% of them Americans. EO referred them primarily to two gambling sites, PartyGaming (72% of its 2004 revenue of US$65 million) owned by the Parasol Group (Anarag Dikshit, Vikrant Bhargava and Russ DeLeon) and Casava (27%) owned by Ari and Aharon Shaked and and Shai and Ron Ben Yitzhak. PartyGaming founded in 1997 was a network of gambling sites with itsd flagship site, PartyPoker, launched in 2001.

Each of these gambling sites could terminate their contracts on short notice for a wide variety of reasons. Why were they willing to allow another site called a “skin” to skim off parts of their profits for simply a hosting and marketing service, particularly since those actual gambling sites encouraged gamblers to register directly on their sites? Why have Empire Poker serve as a gateway to Party Poker? There appear to be a number of reasons: 1) these clients were regarded as bonus gamblers, gamblers they might not otherwise have had; 2) since the sites were recommended by a third party that appeared to be neutral with respect to all gambling sites available, the hosting and marketing site enhanced the credibility of the actual gambling site for honesty and credibility, especially since players were wary of internet sites cheating by using improper shuffling of the cards, insider playing or collusion; 3) since the success of a gambling site depends on attracting a critical mass of gamblers, the function of luring gamblers to a gambling site is triply important; 4) most of the gamblers using those sites are American and American federal authorities consider online internet gambling illegal but then lacked a specific enforcement law – operating at two levels provided a degree of protection for the actual online gambling site for the site on which they register is not a gambling site and cannot be banned from taking credit cards under then current regulations; 5) Party Gaming was valued at US$8 billion is 2005, so why begrudge giving away some of its profits to another company which does so much to enhance its own value.; 6) the competition was already very tough among online gambling sites with up to 200 estimated competitors with giants such as Hurrah Entertainment and BetFair, so that anything enhancing the value of one’s own site is worth supporting.

In 2004 alone, 34,000 new gamblers enrolled on gambling sites through EO’s efforts. In 2004, on gross revenues of US$65.2 million with only 60 employees, it netted $US 37.7 million. That meant that with such revenues, especially given its growth potential – the existing world wide online internet gambling was then estimated to be worth $US!2 billion and growing rapidly – the company’s market value could be estimated to be almost a billion American dollars. Sure enough, by the time it was ready to go public on the London stock exchange, its IPO was valued at up to one million British pounds and when the flotation was about to be launched, it reached a value of US$928 million.

However, at about that time, EO’s relationship with Party Gaming began to sour. In mid-2005, Party Gaming began to “ringfence” its players from EO and upgraded its PartyPoker site to cut out EO from accessing its players. In November 2005, Party Player terminated its relationship with EO. EO sued in the High Court of Gibralter. In February 2006, the two companies agreed to an out-of-court settlement that paid $US250 million to EO. Further, in December 2006, Party Player agreed to acquire Lanir’s remaining shares in EO for $US40 million. It was estimated that Lanir ended up netting about a third of a billion American dollars.

The timing was propitious. In 2006, the United States Congress passed The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) to regulate online gambling. On 2 October 2006, PartyGaming suspended “all real money gaming business with US customers” when George Bush signed the act into law on 13 October. The value of the shares dropped by 60% in 24 hours.

To attract players to EO’s site from many different companies, EO had to develop a translation facility. Lanir purchased and retained ownership of Babylon Inc., an online dictionary and translation service. Using a database of 1400 sources, the company provides services in 75 languages. In addition to covering a wide variety of technical fields, it also offers audio pronunciation services. Listed on the Tel Aviv stock exchange, in 2012, annual revenues totaled US$178 million.

In 2010, Lanir entered the medical tourism business and started a company, Life Tree Marketing, to market high quality health services in Israel – initially surgical services and in vitro fertilization, a field in which Israel is a world leader. Life Tree Marketing initially targeted Eastern European clients. Increasingly, American patients have been attracted because of the significantly lower costs for equivalent service in the United States. Heart bypass surgery that costs $120,000 in the US costs $30,000 in Israel. In vitro fertilization that costs $30,000 in the US costs $3500 in Israel.

His company is in competition with International Medical Evaluation and Referral (IMER) owned by Hadassah Hospital or the Ramat Aviv Medical Center that also serves the medical tourism business. Like his gambling site, his is a marketing site and his company enters into partnerships with hospitals that actually provide the services from which Life Tree rakes off 20% of the fees charged to cover its costs of attracting clients and making the arrangements for them to get to the facilities in Israel. There are already contracts with the Shaba Medical Center, Tel Hashomer Hospital, Shaarei Tzedeck Medical Center and Wolfson Hospital. Annual revenues are already estimated to have reached $US20million.

Stef Wertheimer is a much older entrepreneur, twice the age of Noam Lanir and probably four times the wealth. He is worth at least US$4billion. Originally born in Germany, his fled the Nazis when he was eleven years old and settled in Israel. Although Wertheimer attended an excellent school, he dropped out at the age of 16, surprising in retrospect for someone who puts such a high value on training and education. During WWII, Wertheimer worked for and studied optics with a pioneering researcher in the field, Emmanuel Goldberg, and then joined the British airforce to repair optical equipment installed on British aircraft. After the war, he served in the Palmach and eventually served as a technical officer in the Yiftach Brigade.

ISCAR, one of the largest manufacturers of carbide industrial cutting tools with 6,000 employees worldwide; it was started by Wertheimer in 1952 as a backyard sheet metal cutting operation. It was sold to Bershire Hathaway in 2006 for US$5 billion. The Wertheimer family retained ownership and control of Blades Technology valued at US$1 billion. Sceptical of high tech companies and entrepreneurs or making money off natural resources, whether it be the discovery and export of gas from Israel’s new fields or from buying the raw materials of other nations, Wertheimer is a true believer in the old industrial economy as the backbone of a nation’s wealth. To develop that wealth demands providing workers with the necessary high level of skills to engage in manufacturing, and to ensure that all citizens, whether, religious Jews or Arabs, Haredi or secular, Druze or Circassions, are properly skilled. He is an equal opportunity employer.

Whatever the value of this wealth obtained from the older manufacturing centres, a great part of Wertheimer’s money has come from the development of industrial sites where manufaturing on all levels takes place. In the eighties, Wertheimer focused on comprehensive sites that included not only manufacturing, warehousing and shipping space, but educational, recreational and transport facilities as well. He has been a pioneer with Shimon Peres in using economics to promote peace by fostering co-ventures and cross border industrial parks. This initiative was successful in Nazareth but unsuccessful in Gaza once Hamas took control. Wertheimer envisions such parks, not simply as real estate plays, but as incubators of innovation, worker training and start-up companies. Wertheimer helped found the Democratic Movement for Change and was elected onits list in 1977 and joined Shinui in 1978 when DASH broke apart but left politics in 1981. Currently, he is an active member of Tzipi Livni’s Hatnuah.

He is a winner of the Israeli Prize and was given the Oslo Business for Peace Award in 2010. He is highly esteemed in Israel.

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