Hogan Had Little Contact With Discovery Before Company Decided To Leave Silver Spring

Chair of Maryland Democratic Party contends governor's actions were a 'monumental failure of leadership'; state and local officials said they made every effort to keep company in Maryland

The Discovery building in downtown Silver Spring. Credit: Joseph Zimmermann

Maryland government officials had little more than a month to try to convince Discovery Communications to remain in downtown Silver Spring after the company notified them shortly after Thanksgiving that it was considering leaving the state.

During that time, Gov. Larry Hogan spoke by phone once with Discovery CEO David Zaslav—for 30 minutes on Dec. 8—before the multimedia company announced Jan. 9 it would vacate its Silver Spring headquarters. He "pledged to do everything in his power to keep Discovery in Maryland," according to spokeswoman Amelia Chasse. He did not meet with Zaslav, the head of one of the state’s four Fortune 500 companies.

State commerce officials initially met with Discovery officials Nov. 29—about four months after Discovery announced in late July it was acquiring Scripps Networks Interactive, based in Knoxville, Tennessee.

Meanwhile, Tennessee officials were credited by Scripps CEO Ken Lowe earlier this year with beginning talks with Discovery officials immediately about the company’s plans after the deal was announced last summer, according to published reports. Discovery eventually decided to move its headquarters to New York City and its operations center to Knoxville.

Discovery, which owns TV channels such as Discovery, Animal Planet and TLC, bought Scripps, which operates HGTV, Food Network and Travel Channel, partly to give it more leverage with cable providers in negotiating channel fees.

Though state and Montgomery County officials say they made every effort to keep the company in Silver Spring, the governor’s apparent lack of involvement appears to be in sharp contrast to his recent efforts to lure Amazon to build its second headquarters in the county, which include shepherding a tax incentive package that could be worth as much as $5 billion through the General Assembly this spring.

Landing Amazon with its promise of 50,000 jobs could be a major coup for the state and county, but the loss of Discovery, with its 1,300 employees, is an economic blow, especially to downtown Silver Spring, where it had anchored the community’s revitalization with the opening of its headquarters in 2003.

Maryland Gov. Larry Hogan, center, participates in a bill signing ceremony April 25 for the Amazon tax incentive package that's part of his administration's efforts to land the company in Montgomery County. Hogan also signed a Metro funding bill at the ceremony. Credit: Andrew Metcalf

Kathleen Matthews, chair of the Maryland Democratic Party, said the record of Hogan’s communications with Discovery demonstrates his negligence. Matthews previously worked as the chief communications officer for Marriott International, one of the three other Fortune 500 companies in the state.

“As somebody who worked for one of the largest corporations and major employers in Maryland for nearly a decade, I’m appalled that Gov. Hogan was so negligent and did not reach out to the CEO of Discovery, which is a major employer in our state,” Matthews said Wednesday. “I think for a governor who campaigned that Maryland would be open for business under his leadership, this was a monumental failure of leadership.”

The details about Maryland officials’ interactions with Discovery emerged in information provided to Bethesda Beat from Hogan’s office as well as emails between Discovery and state officials provided to the state’s Democratic Party through a public information request it made after Discovery announced it would leave Maryland. Those emails were shared with Bethesda Beat.

Chasse said state officials did everything possible to keep Discovery in Silver Spring. She provided a schedule that showed Discovery representatives first advised the governor’s office Nov. 29 of the company’s potential relocation plans. Between that date and Jan. 9, when Discovery made its announcement, staff members from the governor’s office and Department of Commerce met or spoke on conference calls with Discovery officials another six times, according to Chasse.

Those meetings and calls mostly took place between Maryland Secretary of Commerce Mike Gill, his staff members, Hogan administration officials and David Leavy, Discovery’s chief corporate operations and communications officer.

Chasse wrote in an email Thursday that Hogan also spoke with Zaslav on Jan. 9, the day Discovery announced it would vacate the Silver Spring headquarters, move its global headquarters to New York City and locate its operations center at the Scripps campus in Knoxville. The two "discussed Discovery's continuing presence in Maryland," she wrote.

“As soon as Discovery signaled their potential relocation, the Hogan administration worked swiftly with our partners in Montgomery County to fight to keep the company here in Maryland,” Chasse wrote in an email last week. “The state and county put together an aggressive, competitive incentive offering that ultimately was not able to prevail over financial and geographic realties resulting from Discovery’s merger with Scripps.”

Chasse accused the state’s Democratic Party of attempting to “score cheap political points” by criticizing Hogan for the loss of Discovery.

“The fact that Democratic leaders in Montgomery County who were actually involved in the negotiation process have offered nothing but praise for the role played by the governor and the administration raises the question of who the Maryland Democratic Party is serving with this false attack,” Chasse wrote in an email.

Matthews said Hogan, who is running for re-election in November, took every opportunity in his 2014 campaign to criticize Democrats for not being proactive in bringing jobs to Maryland.

“So it’s absurd to say this is a cheap political shot,” Matthews said. “We’re just holding the governor up to his own standards.”

The Silver Spring headquarters is Discovery’s largest office location and primarily home to the company’s operations, technology and corporate services employees, according to Discovery. The company does plan to keep a couple hundred of its employees in Maryland to handle government relations and other functions and is seeking office space. Discovery already has offices in New York, where Zaslav and many of its executives work. The company also maintains offices in Los Angeles, Miami, London, Singapore, Warsaw and Milan.

Besides Discovery and Marriott, the other Fortune 500 companies in Maryland are Lockheed Martin and Host Hotels and Resorts.

Neither state nor county officials provided details of the incentive package offered to Discovery during negotiations. Chasse said the state doesn’t typically release details of incentive packages that aren’t accepted. Jennifer McEachern, spokeswoman for the Tennessee economic development department, wrote in an email Thursday that she can’t share details about the Discovery incentive package because the contracts between the state and Discovery haven’t been finalized.

Montgomery County Executive Ike Leggett said in an interview last week the governor’s office worked cooperatively with county officials to try to keep Discovery in Silver Spring, but ultimately the company’s departure was due to changes in the television industry. He believes the state’s offer exceeded the incentive package offered by Tennessee, based on the information he was provided.

“Based on what we saw and what we did analyze, it was clear to us that it was not a question of the incentive package,” Leggett said, “but a business decision.”

He said Discovery was interested in expanding its digital media operations and Scripps was set up to excel in that portion of the business.

County spokesman Patrick Lacefield wrote in an email the county first met with Discovery officials about the Scripps merger on Nov. 21 and after that county officials had a continuing dialogue with Discovery staff about its plans. Leggett said he spoke with Zaslav during this time.

Lacefield wrote the county did not offer in writing any type of incentives to Discovery to stay in Silver Spring.

One government official with knowledge of the Discovery negotiations said on background that there were concerns about providing lucrative tax or financial incentives to Discovery to keep its offices in Silver Spring because of the company’s business struggles over the past few years. Some feared that investing in Discovery might not pay off if the company couldn’t turn its business model around as consumer dollars shifted from cable subscriptions to Netflix and other on-demand media and entertainment providers, according to the official.

Since mid-2014 the company’s stock price has declined from around $43 per share to around $24 per share in April, a figure that reflected a rebound from a previous low of about $16.50 per share in November. The company has experienced declining revenue from its cable TV channels as more people cancel cable subscriptions in favor of streaming services.

The emails and meeting descriptions provided to Bethesda Beat by the state Democratic Party also showed multiple attempts by a Discovery representative to set up a meeting between Hogan and Zaslav when the governor first took office in 2015.

Discovery lobbyist Robert Garagiola sent multiple emails requesting a meeting over three months before a 15-minute call with the governor was scheduled. After sending eight messages to Hogan’s scheduler and one request to Hogan’s brother, Patrick Hogan, Garagiola wrote to Hogan’s then-Deputy Chief of Staff Michael Richard on March 24, 2015, that he had “been trying to schedule a call between Discovery Communications CEO and Governor for more than 2 months.”

“Request was 10-15 min call,” Garagiola continued in the email. “More meet and greet. The sky is not falling for Discovery in MD; CEO had developed good rapport with [former governors Martin] O’Malley and [Bob] Ehrlich (as well as Govs in other states) and is seeking the same with Governor Hogan. They are a multi-billion worldwide communications business headquartered in MD … . Can you help facilitate?”

On March 30, the governor's office proposed the two meet April 21 in Annapolis, but Zaslav was unable to attend, according to the emails. Hogan and Zaslav eventually spoke on the phone on April 20, 2015, according to the records.

In response to a question about why the initial call took so long to set up, Chasse wrote, “The governor had a call with Mr. Zazlav [sic] shortly after taking office, during which they developed and maintained a cordial relationship. Discovery officials have publicly attested to the strength of the company’s relationship with the state.”

When asked for details about the calls between Zaslav and Hogan concerning the company’s relocation plans, Leavy, the Discovery executive, said in an email to Bethesda Beat that Discovery does not discuss its interactions with government officials.

“I can share that we had extensive conversations at all levels of the Maryland State Government and the office of the Montgomery County Executive over the course of our deliberations,” Leavy wrote. “Those discussions were constructive, comprehensive and wide ranging. Maryland elected officials worked very hard and did their jobs in trying to find a solution for Discovery and for the state. No one ‘lost’ Discovery.”

Leggett said he spoke twice on the phone with Zaslav during the negotiations and that the CEO said that leaving Silver Spring was a tough decision for the company. At one point in the conversations, there was a proposed compromise that would have potentially split Discovery employees between Knoxville and Silver Spring, Leggett said.

Leavy wrote in an email to Bethesda Beat last month that Discovery chose New York City as the location for its new global headquarters because of the nature of the media business and because it “is the epicenter of the media industry.”

He wrote that Knoxville was chosen for Discovery’s operations office because it has “a strong community and amenities, favorable business climate, and a more favorable cost of living.” Leavy described the Scripps campus as “world class.”

A Kiplinger report noted that Scripps spends about half of what it costs Discovery to create content for its TV channels and websites.

The Scripps headquarters in Knoxville, Tennessee. Credit: Google Maps

Chasse said part of the reason why Maryland officials didn’t seek meetings with Discovery prior to Nov. 29 was because they didn’t have any indication the company was considering leaving Silver Spring. She noted that in September, the state worked with the company to provide a $625,000 loan to help pay for renovations to its Silver Spring headquarters. Hogan said in a press release at the time the money would be used to enable the company to “expand their headquarters and consolidate their company.” The loan was scuttled after Discovery announced it would leave.

However, in September, Discovery officials were publicly saying they had not made a decision about the location of the company’s corporate headquarters following the merger with Scripps. Earlier, in late July, shortly after the deal was announced, a Discovery spokeswoman told Bethesda Beat the company had made no decisions about office locations.

While Maryland officials were not initially active in discussions with the company about its possible relocation, Tennessee officials had been engaged since the deal was announced.

Knoxnews.com, the Knoxville News Sentinel website, reported that Knoxville Mayor Madeline Rogero and the Knoxville Chamber had been “talking to Discovery executives” since the Scripps sale was announced. City officials were initially concerned Knoxville would lose Scripps, but the city ended up landing Discovery employees instead.

Discovery’s decision to relocate company operations to Knoxville “took something that could have been perceived as lemons, with losing a major player, and turned it into lemonade with them making themselves a major presence in Knoxville,” Bill Lyons, the chief policy officer and deputy to Rogero, told the news organization.

Lyons added that the move would cement Knoxville’s role “as a hub for video production and distribution”—which is what Discovery’s initial move did for Silver Spring after the company arrived there in 2003.

The article quotes Scripps CEO Ken Lowe, who credits Tennessee Gov. Bill Haslam, Rogero and Knox County Mayor Tim Burchett with being “actively engaged with David [Zaslav] and Discovery since the day the deal was announced.”

Matthews said Hogan’s office mismanaged its interactions with Discovery.

“One of the basic functions of a governor is to protect their constituents’ livelihoods and jobs,” Matthews said. “It’s apparent from the record that Gov. Hogan sat on his hands after Discovery reached out multiple times to him and even after the merger was announced. Obviously Tennessee Gov. Bill Haslam took advantage of the opportunity. He was proactive and as a result he was able to attract hundreds of high-paying Maryland jobs to Tennessee.”

Leavy previously said in an email to Bethesda Beat at the end of March that the company was “months away” from making decisions about potential layoffs or major employee relocations as part of the planned moves.

Discovery’s exit leaves downtown Silver Spring with a 10-story, 540,000-square-foot building needing a new tenant. Discovery owns the building and has contracted with the commercial real estate broker JLL to sell it. Leggett said last week there has been some interest in the building, but most of the interest has been in dividing the space to house multiple tenants. He said the county remains interested in attracting one or two major tenants.

David Petr, CEO of Montgomery County’s Economic Development Corp., told a County Council committee last week that he’s “cautiously optimistic” that a buyer will purchase the building, but he warned that a decision will not happen “in the next month or two.”