Discovery’s Silver Spring Exit Becomes Political Football in Maryland, Montgomery County

Discovery’s Silver Spring Exit Becomes Political Football in Maryland, Montgomery County

Officials point fingers after company says it will leave in 2019

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The Discovery Communications headquarters in Silver Spring

Joe Zimmermann

Discovery Communication’s announcement Tuesday that it would leave its corporate headquarters in downtown Silver Spring set off a rash of questions about how Montgomery County and Maryland could lose one of the four Fortune 500 companies based here.

While incumbent elected officials sought to downplay the company’s exit as a result of the changing economics in the TV industry, the state’s Democratic Party and two local county executive candidates said more should have been done to try to keep the company in Silver Spring.

About 1,300 Discovery employees work out of the 10-story headquarters at the intersection of Georgia Avenue and Colesville Road.

Gov. Larry Hogan in a press conference Tuesday said the company’s exit had more to do with its acquisition of Scripps Networks Interactive than the state’s business climate. Discovery is acquiring the Knoxville-based TV and media company as part of a $14.6 billion deal expected to close at the end of the first quarter this year.

Hogan and Montgomery County Executive Ike Leggett both said the state and county attempted to offer a lucrative incentive package to keep Discovery at its headquarters, but the company made its decision based on other economic considerations.

Discovery plans to move its global headquarters to New York City and its back-end operations to Scripps’ Knoxville location. Company officials, including Discovery CEO David Zaslav, said Tuesday that New York City is where the company’s key advertising and creative partners are located while Knoxville offers a lower cost of living for its employees.

Many Discovery executives, including Zaslav, were based out of a company office in New York City before the company announced its plan to shift its headquarters.

Tennessee offered Discovery an incentive package for its move to Knoxville, according to Jennifer McEachern, the communications director for the state's Department of Economic and Community Development. However, she said she couldn't discuss details of the package until the project is contracted. She did not know when that would be.

Scripps employs about 1,000 people at its Knoxville offices.

Hazel Crampton-Hays, a spokeswoman for New York Gov. Andrew Cuomo, wrote in an email to Bethesda Beat that New York offered no state incentives to bring Discovery’s headquarters to New York City.

“With our talented workforce, diverse opportunities and unparalleled commitment to economic development, we have positioned New York at the forefront of the 21st century economy,” Cuomo said in a statement provided by Crampton-Hays. “Discovery’s decision to relocate their global headquarters to the Empire State is proof positive of that commitment, and we are proud to welcome one of the world’s leading media companies to help drive jobs and growth in New York.”

Hogan said Tuesday about the company’s exit, “in the grand scheme of things, it’s not the end of the world,” according to The Washington Post.

Leggett said the county and state made a “tremendous offer” to Discovery and indicated the incentive package was one of the largest offered to a company during his time in office, although he did not reveal specific details about the package Tuesday.

In the fall, the state and the county offered Discovery about $1 million in grants and loans to help pay for $10 million in updates to the Silver Spring headquarters.

Allison Mayer, a spokeswoman for the state’s Department of Commerce, wrote in an email Tuesday that the state’s $625,000 conditional loan to the company required Discovery to retain 1,200 employees at the Silver Spring headquarters. She said the funds had not yet been disbursed and therefore would not have to be taken back.

The county offered a $375,000 grant to Discovery from its economic development fund for the building updates. County spokesman Patrick Lacefield wrote in an email Wednesday that those funds were not disbursed and won’t be provided to the company.

The Maryland Democratic Party, which is trying to unseat Hogan, a Republican, in the 2018 gubernatorial election, seized on Discovery’s exit as a chance to knock Hogan. The party released a press statement Wednesday that said Hogan was the first Maryland governor “in decades” to lose a Maryland-based Fortune 500 company to another state.

“Governor Hogan should know that when a company the size of Discovery leaves a community, it has a ripple effect on workers and businesses throughout the local economy,” Maryland Democratic Party Chairwoman Kathleen Matthews said in a statement. “Restaurants, coffee shops, contractors, and other local small businesses will be impacted by this loss.”

The other three Fortune 500 companies in the state are Lockheed Martin, Marriott International and Host Hotels & Resorts—all of which are headquartered in Bethesda.

Jane Redicker, president and CEO of the Greater Silver Spring Chamber of Commerce, said in an interview Tuesday that losing Discovery is “clearly going to be a loss for Silver Spring.”

She added that she’s already working with Leggett and the Montgomery County Economic Development Corporation to move Silver Spring up as an economic priority to help find a buyer and new tenant for the 545,000-square foot Discovery office building.

Discovery owns the building, which it built in 2003, and is putting it up for sale. The company plans to leave the headquarters by the second half of 2019, but said it would keep some local employees at a smaller office in Maryalnd and expand a technology center in Sterling, Virginia.

Two Democratic Montgomery County executive candidates said Tuesday that more of an effort should have been made to retain Discovery.

“While the governor of Tennessee was working like heck to get these jobs, our council members were debating the merits of a ban on kangaroos,” Del. Bill Frick (D-Bethesda), who is among six Democratic candidates running to replace Leggett, who must step down due to term limits, in 2018. Frick was referring to a council ban on exotic animals in performances. He continued, “I think what was at play was a combination between Discovery and Scripps and we got beat flat out in a competition.”

Potomac businessman David Blair, a health care executive running for county executive, said Discovery’s headquarters is something “we’ve been so proud of in Montgomery County for 10-plus years.”

“To lose a Fortune 500 company is real kick in the gut,” Blair said. “We have a business environment here that needs [to be] reworked. We have a cost-of-living and traffic problem that doesn’t work for most businesses.”

Blair said the county spends less than one tenth of 1 percent of its operating budget on its economic development fund—about $5 million. In fiscal 2018, the county budgeted $4.1 million for the fund, which is designed to assist private employers who plan to locate or expand their operations in the county, according to county budget documents.

Lacefield said in an email the county uses the budgeted fund figure as a placeholder and the county executive requests supplemental funds from the council as needed for specific corporate retention or attraction efforts.

Republican county executive candidate Robin Ficker, a perennial candidate in local elections, said Wednesday he believes recent property and recordation tax increases approved by the County Council factored into Discovery's decision to move.

"The county has a reputation for increasing taxes and that's not what big businesses want to hear," Ficker said.

County Council member Tom Hucker, whose district includes downtown Silver Spring, said Tuesday he believes Discovery made the decision to move based on the economic realities of the global media industry.

Discovery and Scripps still largely depend on cable subscribers to generate revenue from their network of TV channels such as Discovery Channel, TLC, Food Network, HGTV and The Travel Channel. The research firm eMarketer estimated that 22.2 million U.S. adults ended their cable or satellite television subscriptions in 2017, up 33 percent from the approximately 16.7 million who “cut the cord” in 2016.

Discovery has been working to diversify its holdings by expanding its digital media operations and by acquiring sports rights through its European sports network Eurosport, which has the broadcast rights for the Olympic Games for most of Europe from 2018 to 2024.

The company’s profits and revenues have stagnated since 2014, according to its financial reports, while its stock price has declined from around $40 per share five years ago to around $21 per share today.

Hucker noted that after Discovery’s founding president—John Hendricks—left the company in 2014, he had heard various chatter about the company moving out of Silver Spring. Hendricks first founded Discovery in 1982 in Bethesda to provide documentary programming to cable channels before moving it into the Silver Spring headquarters in 2003.

Zaslav has been the company’s president and CEO since 2007 and helped usher the company through the process of going public in 2008. He is among the highest-paid CEOs in the country, earning $341 million in cash, stock and other benefits from 2012 through 2016, according to The Washington Post.

Hucker said the council met in closed session a couple of times to discuss an incentive package to encourage Discovery and Scripps to consolidate in Silver Spring and council members indicated their willingness to support a package if the company would stay.

However, he said he believes the company made the decision to consolidate in Knoxville because it would be a cheaper location to do business. He also didn’t believe the company’s exit from the county says anything about the local business climate.

“Nothing has changed about the Montgomery County business climate in the last year,” Hucker said.  “This [move] has been something that’s been all but inevitable. It’s bad news we’ve been hoping not to hear for a number of years.”

Hucker credited Discovery with being a key part of downtown Silver Spring’s revitalization over the past 15 years, but said the downtown can now stand on its own.

“The Silver Spring economy has really diversified since then,” Hucker said. “We’re going to very much miss their presence, but Silver Spring has a larger, more diverse economy than it did 17 years ago. It’s still a great place to do business.”

With reporting by Bethesda Beat managing editor Andrew Schotz 

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