The Best of Business 2008

Lets face it: 2008 was, without a doubt, one of the ugliest years any of us can remember. Probably not since 1929 have so many of the Puget Sound regions most powerful economic titans looked so vulnerable.

There was the near-collapse of the worlds financial system due to a whole string of obscure and complex derivatives that virtually no one understands. Once-stalwart banks and investment institutions disappeared virtually overnight. The stock market suffered one of the most spectacular meltdowns in history. Many investors panicked and pulled their money out of the market, making a bad situation even worse.

The unthinkable collapse of Washington Mutual brought home the dual crises in the nations housing market and banking system in a particularly brutal way to Puget Sound residents.

Boeing faced one mess after another. It lost the multi-billion-dollar deal to build a new generation of tankers, had to fix production snafus for the 787 Dreamliner and dealt with a crippled airline industry when fuel costs skyrocketed earlier this year. Oh, yeah, and then there was that costly two-month strike by its 27,000 machinists.

Starbucks has had to deal with the difficulties of downsizingfrom closing stores and laying off employees to being dismissed by independent coffee shops as nearly irrelevant.

Even the mighty Microsoft suffered through plenty of changes this year. The company said farewell to co-founder and driving force Bill Gates, who retired to devote himself to his charitable foundation. It was also ridiculed for the performance of its new operating system, Vista.

Despite increasing sales and profits, Microsoft officials acknowledged that they would slow expansion in 2009, putting the Puget Sound area economy in an even more precarious position.

Still, despite such heart-stopping events, there was some positive news to report in the local business world. Companies like Steve Singhs Concur continued to grow and dominate their niche markets. Innovations such as Amazon.coms Kindle Electronic Reader, were poised to create entirely new industries. And a new crop of startup companies gained traction.

Seattle Business rounds up the good, the bad and, yes, the ugly from 2008. It was a year we wont forget… no matter how hard we may try.

Wade Cook Goes to Jail
Finance-guru-turned-felon Wade Cook has begun his new career as a convict, taking up residence in a federal prison for a seven-year stay. The one-time financial expert, who ran a successful string of investment seminars, was found guilty last year on three counts each of tax evasion and filing false tax returns, and a single count of obstructing the IRS last year in federal court in Seattle. He had been out on bail pending an appeal of his conviction, but the appeal was denied in September. He was convicted of underestimating his income by $9.5 million. The money was made, ironically, by selling tax tips and investment advice to the public via his seminars. Manny Frishberg

Lucky Break vs. Sears
The business world loves a winnerusually the bigger the better. But sometimes a win for the little guy can be even more satisfying. Case in point is Ken Ahroni, president of Lucky Break Wishbone, a small Seattle manufacturer of an unusual product: plastic novelty wishbones ($4 buys you a pack of four), which you can break with the whole family without needing to kill a family of turkeys in the process. In 2005, Ahroni spoke with Sears about supplying 1 million of the fake bird bones for a Young & Rubicam Thanksgiving season promotion. Sears, however, decided to go with a Chinese manufacturer that could produce the bones for less.

But the story didnt end there.

Looking at the wishbones made in China, Ahroni noticed some startling similarities to his own Lucky Break designs, so he cried fowl and hired counsel from Seattles Darby & Darby intellectual property firm. In the course of the ensuing two-and-a-half year legal battle, Sears argued that Ahroni could not copyright a design that came from Mother Nature. However, by using expert testimony from ornithologists, Ahronis lawyers proved that Lucky Breaks design differed from actual turkey bones in at least seven significant ways and that the Sears wishbones carried almost exactly the same differences. In July, a federal jury found in favor of Lucky Break to the tune of $1.7 million for copyright infringement. Ooh, snap! Randy Woods

Lets face it: This had to be the worst year ever for Seattle sports (and that really says a lot). The Mariners spent $117 million and got an ROI of 101 losses. The Seahawks look less than ordinary and are saying goodbye to Coach Holmgren. The Huskies have assembled one of the most wretched teams in their history. And the Sonics? …

OK, were feeling a bit verklempt now.

But while the mighty men of Seattle sports were busy mucking things up royally, a group of talented, shrewd and dedicated women provided the lone bright spot on the sports horizon: the Seattle Storm, both on the court and in the boardroom.

Last year, a group of businesswomen and civic leadersAnne Levinson, Lisa Brummel, Ginny Gilder and Dawn Trudeaurealized that the Sonics were all but gone and were destined to take along their WNBA franchise, too. These four investors, however, looked at the Storms loyal fan base and the talent that won a championship as recently as 2004, and formed Force 10 Hoops to make sure the Storm stayed put. In January 2008, after a six-month negotiation with the Sonics Clay Bennett, Force 10 chair Levinson officially purchased the Storm for $10 million.

This year, the team, led by Sue Bird, Swin Cash, Yolanda Griffith and Sheryl Swoopes, rewarded the new owners with a playoff berth. With a successful season under their belts, Levinson et al. will have to deal with the mundane business of ownership, such as negotiating a new KeyArena lease, which expires in 2010. (Getting Lauren Jackson back in the lineup wouldnt hurt either.) R.W.

In
a time when the best that can be said of the performance of any firm is
that it didnt totally suck, Blake Nordstrom makes perfect sense as
manager of the year.

Thats not to say 2008 was the best of
times for Blake or the venerable Seattle-based retailer, Nordstrom. The
company was buffeted by the same ill winds that hit other retailers
across the country. High gas prices, rising unemployment and overall
economic uncertainty sent many consumers scrambling for shopping-mall
exits to search for bargains at the countrys discount retailers. The
trend helped push Nordstrom to a 7.9 percent drop in same-store sales
and dragged its stock down from its Jan. 2 high close of $35.42 to
$32.35 in mid-September; by mid-October, however, the price fell, with
the rest of the market, to under $20.

Still, Blake gamely
pressed ahead with Nordstroms expansion plans. While other major
chains were either closing less profitable spots or folding altogether,
the great-grandson of the founder defied critics by opening seven new
stores and 12 new Nordstrom Rack locations by late September. He also
changed the starting date of the chains big semi-annual sale to take
advantage of the Memorial Day holiday weekend and brought more people
through the doors by allowing online buyers to pick up their
merchandise at its brick-and-mortar stores.

In addition, it
was reported that Blake Nordstrom responded to the economic downturn by
cutting his own salary 36 percent in 2007. As a result, his
compensation went from $3.6 million in 2006 to $2.3 million in 2007. David Volk

The growing success of Amazons Kindle electronic reader is like the punch line of a good news-bad news joke for many authors.

The
good news is that if youre an author who has written a book so popular
that booksellers and Amazon dont have any copies left, you can rest
assured knowing that Kindle owners can still download copies of your
great American novel.

The bad news? Since theres no physical title page, theres really nowhere for you to autograph it.

Purists
who love the weight of actual books and the feel of turning stiff,
creamy pages filled with print may not be thrilled, but sales of
Amazon.coms contraption took off this year. Although a company
spokesperson would not reveal sales figures for the device, The Seattle
Times reported that a Citigroup analyst changed his 2008 Kindle sales
estimate from 190,000 to 380,000 units, calling it the iPod of the
book world. His glowing

report pushed Amazons share price up nearly 10 percent.
Kindle
could be this holiday seasons big gadget giftas long as people still
have enough money to afford the $359 price tag. D.V.

Best Application: V Cast Rhapsody Phone

Cell
phones do a lot more than make phone calls. So a phone that subs as an
MP3 player is hardly a new idea. The innovation that sets Verizons V
Cast Rhapsody mobile phone apart from the rest is where the music comes
from.

By teaming up with Seattles RealNetworks, Verizon
offers customers access to the Rhapsody library of millions of songs
for a subscription fee of $15 a month.

The RealNetworks
Rhapsody service is also available on several other phone models or can
be downloaded on your computer, the company says. M.F.

Meet
the new boss: Hes Jamie Dimon, the wily 52-year-old CEO of JPMorgan
Chase, with an ego the size of Wall Streets write-downs and the
ambition to match. Hes about to start passing out pink slips at WaMu
Center, and a large portion of Seattles financial district is holding
its breath.

This economic meltdown has created a few
mega-winners so far, and one of them appears to be Dimon. Lets just
recap: After spending more than a year offering to acquire Washington
Mutual, Dimon ends up buying the crippled bank under very fast and odd
(if not questionable) circumstances from the Federal Deposit Insurance
Corp. for $1.9 billion on Sept. 25. In the current climate on Wall
Street, that much money amounts to little more than a rounding error.
And, as if the deal werent sweet enough already, he doesnt have to
worry about any of the banks pesky bondholders or shareholders.

If
his gambit to pick up the dying Washington Mutual succeeds, then Dimon
will have pulled off what appears, on paper at least, to be one of the
greatest bank robberies of all time. In the deal, JPMorgan Chase gets
about $126.3 billion in deposits, $310 billion in assets and 2,207
branches that extend the merged banks branch network to 23 states.
This places Dimons empire within reach of 42 percent of the United
States population. And the cherry on top is the WaMu Center. The
building alone has been estimated to be worth $750 million.

Sure,
there is some risk. JPMorgan Chase may be facing some troubled loan
problems of its own. Also, it is marking down WaMus loan portfolio by
$31 billion, which is JPMorgan Chases estimate on the remaining bad
loans. But those are only estimated loan losses. The final amount of
toxic loans could be less. What may end up being a nice insurance
policy for the deal? The federal government in October gave Dimon
billions of dollars to thaw out his banks frozen loan business. But
published reports say the money could be used for other corporate
needssuch as covering losses from lousy loans, perhaps?

WaMu
isnt Dimons only recent prize. He rescued Bear Stearns earlier this
year and used the imperiled investment banks own cash to pay for the
acquisition. In the process, he captured business worth an estimated
$15 billion and a New York skyscraper worth $2 billion. Dimon is
proving that there are plenty of real estate gems to be found in ashes
of the subprime disaster. J.B.

Clearwire: $14.5 Billion
Although
the Ts had yet to be crossed and the Is dotted at press time, the
expected $14.5 billion joint venture between Clearwire and Sprint
Nextels Xohm unit to roll out the wireless WiMax mobile network is
far and away the biggest telecom deal the region has seen since John
Stantons $30 billion Voice-Stream sale to Deutsche Telekom in 2001.
Despite the gloom in the current markets, Clearwire chairman Ben Wolff
is confident that WiMaxwith secure backing from giants such as Google,
Intel and Comcastwill grow to reach 140 million customers nationwide
by 2010. R.W.

Emeritus: $278 Million
Seattle-based
Emeritus Corp., the nations third largest owner of assisted-living
housing complexes, got even bigger this year, swallowing up
Californias Summerville Senior Living Inc.

The $278 million
stock deal adds 81 complexes to Emeritus across 13 states. The company
now controls nearly 300 complexes in 36 states. It rents units to
elderly residents who need some help with daily life but do not require
full-time nursing care. An aging baby-boomer population promises
continued growth for the 15-year-old company which, despite an uneven
financial record, raised more than $300 million in a stock offering
last year. M.F.

Puget Sound Energy: $7.8 Billion
The
so-called casual gaming industry has grown in the last few years from
a minor niche into a major force that is challenging the complex,
role-playing shoot-em-ups featured on Xbox and PlayStation. Perhaps
nowhere was this trend illustrated more clearly than at Seattles Big
Fish Games, which reeled in a whopping $83 million from a group that
includes Balderton Capital, General Catalyst Partners and Salmon River
Capital.

Could this huge sum signal a possible bubble for the
expanding industry? Big Fish CEO Jeremy Lewis is betting that there is
still room for growth. After showing profits for six straight years
with popular titles such as Mystery Case Files and Azada, Big Fish
will use the funds to fuel its continuing expansion, including a
Japanese-language version of its website, a new engineering facility in
Vancouver, B.C., and the possible acquisition of other gaming
companies. M.F.

Big Fish Games: $83 million

The
so-called casual gaming industry has grown in the last few years from
a minor niche into a major force that is challenging the complex,
role-playing shoot-em-ups featured on Xbox and PlayStation. Perhaps
nowhere was this trend illustrated more clearly than at Seattles Big
Fish Games, which reeled in a whopping $83 million from a group that
includes Balderton Capital, General Catalyst Partners and Salmon River
Capital.

Could this huge sum signal a possible bubble for the
expanding industry? Big Fish CEO Jeremy Lewis is betting that there is
still room for growth. After showing profits for six straight years
with popular titles such as Mystery Case Files and Azada, Big Fish
will use the funds to fuel its continuing expansion, including a
Japanese-language version of its website, a new engineering facility in
Vancouver, B.C., and the possible acquisition of other gaming
companies. R.W.