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Chuck Dolan's Last Stand



CHUCK DOLAN'S LAST STAND

By HILARY KRAMER

IT took three decades for Chuck Dolan to build one of New York's most recognizable companies. And it may take only one day, tomorrow, for that empire to be snatched away by his son.

At the tony Breakers Resort in Palm Beach, Cablevision's board of directors will vote tomorrow on whether the elder Dolan will be allowed to buy Voom, a satellite TV venture that has torn his business and his family asunder.

Cablevision is two companies now — in a civil war between father and son. Each puts out its own press releases, sets up its own Web sites, plots its own future.

Chuck Dolan's Cablevision sees a strong future, including a chance to keep expanding into markets like high-definition television. The other side, masterminded by James Dolan, would sell off assets, perhaps dismantle Cablevision completely.

"There is some Greek tragedy in here, no doubt about it. The patriarch, Chuck, feels that the people he created and nurtured, like his son Jimmy, have turned on him," said a top media investment banker.

"The thing about Chuck is that he is aggressive and tough-minded, and he has strong convictions. It is just that this has been able to escalate to an outright war because the cable capital markets agree with Jimmy and, this time, Chuck is in the minority. But Chuck has the vote, and he's unshakeable."

WHILE it seems that Chuck Dolan's love of Voom is Quixotic, colleagues note the entrepreneur often has followed his own path — and won.

Dolan founded the nation's first urban cable television company, Sterling Manhattan, in the 1960s. When many prognosticators thought that no one would pay for television, especially where they got a clear free signal, Dolan launched Home Box Office.

"This is the man who founded HBO, the Playboy Channel and started lots of businesses and has not been wrong yet," the banker noted. And Chuck Dolan may not be wrong now, he added. "The market may be out of sync with the bet for a long time, but in the end, the owner is more right than the marketplace."

The success of HBO and its sale to Time Life allowed Dolan to build Cablevision, the nation's sixth-largest cable company, and expand into sports and venues.

For Dolan, the company was always a family affair. The father of six grown children, he installed three of them at Cablevision — including Jimmy, who is now CEO.

But just because he hired Jimmy doesn't mean they always got along.

In an interview with Newsday in 1997, Chuck Dolan said whenever he fought with Jimmy, "I let him run up and down the room until he gets tired." Jimmy responded, "See, it's just like it was when I was five years old."

One day in 1998, according to Forbes, Marc Lustgarten, then vice chairman for day-to-day operations, asked someone to explain an issue to Jimmy in a meeting. Jimmy threw a tantrum. "This is my meeting!" he yelled. "I don't want anything explained to me! I don't want anything presented to me! I don't want to be talked to! This is my meeting!!"

It didn't help matters that Jimmy Dolan's business decisions drew unflattering comparisons with his father's. In 1998, he bought the electronics retailer The Wiz after it declared bankruptcy; Cablevision would take $250 million in losses before shutting it down.

Buying Clearview Cinema, which also tanked, was another blunder. Jimmy took flack from sports fans for the Knicks dismal performance while also engaged in a public war of words with Mayor Bloomberg over the West Side Stadium — a project that could hobble Madison Square Garden's revenue.

Employees were quoted as saying that whenever someone would complain to Chuck about Jimmy, the elder Dolan would shrug and say, "What can I say? He's my son."

Relations between the two deteriorated further after the death of Lustgarten, who handled Madison Square Garden and served as Chuck Dolan's consigliere. He served as an ambassador between the two men and mentored Jimmy's rise before his death in 1999 from cancer.

Afterward, Jimmy concentrated on Madison Square Garden and the companies' sports assets. A source said, "Jimmy has not a wit of interest in the cable business."

With the board advising Jimmy to shed the $500 million Voom — and Jimmy himself interested in selling the cable assets — Chuck sees the company he built being snatched from underneath him.

"He had two options — death or retirement," a source close to the family said. He's not ready for either.

THINGS came to a head last week when Jimmy sent out an internal memo explain ing that Voom would be sold.

Chuck and one of Jimmy's older brothers, Tommy, issued a response indicating that the business was still a priority.

The fight became a public farce, with the competing branches setting up their own Web sites and issuing conflicting news. Jimmy said Voom was shutting down; Chuck said it was still accepting customers.

But it's the market that has the board's ear. "Jimmy said he doesn't believe in Voom, but the truth is that the market hates it and he is aligned with the market. Every time they try to get rid of Voom, the stock goes up," said the media banker.

Voom, however, is only the tip of the iceberg. If Jimmy successfully challenges his father on Voom, Wall Street believes that Cablevision will be broken up and sold.

"Over some period of time, the cable and programming businesses will be sold, and maybe Chuck is sitting with Voom and the spectrum and Jimmy is sitting with the Garden and the teams.

Other than that, there's a big pile of cash to be distributed to shareholders. That's the end game," said Robert Routh, media analyst at Jeffries & company.

For the time being, however, Chuck Dolan is desperate to hold on.

He still has a 41 percent voting stake, and he forced out three board members on Wednesday. The big shocker was Dolan's announcement that he could exercise his right to determine 75 percent of the company's board at the next annual meeting. That could mean that Jimmy loses his board seat.

But even with his voting power, pressure from Wall Street may be too much.

"This is about media moguls with golden guts that make these huge generational bets on new technologies," said one insider. "They don't care what the world thinks, and they are unstoppable. Even with family. It is just that the stock price has shown that the market is on Jimmy's side this time."

Whatever the outcome, it's been a tense weekend in Palm Beach, as the board discusses the situation.

"Everyone will be looking to see people's body language and who sits where," a source close to the company said about Monday's meeting.

"I think that because Jimmy is Chuck's son, the odds are slim that he will throw him off the board, but the thought has probably crossed his mind. However, right now he has people on the board that won't say 'yes' and will do what is best for the company," Routh said.

Board members also have some self-interest. "John Malone was on the board of Cablevision in the late '90s and now he is back. He is busy with Liberty, so the question is: Why has he returned?" Routh said.

An industry insider added, "Malone is an insider and a shark. He is coming in to have some blood. He was told that they are serving fish for dinner tonight."

In one of the more amusing — and unusual — research reports ever filed, Craig Moffett and Amelia Wong of Bernstein Research Call say the fate of the company all comes down to what kind of dynamic the Dolans are following:

* Henry IV and Prince Hal, who battled, but in the end Hal saved his father's life. If the Dolans are Shakespeare, the analysts claim, the company stays together.

* Darth Vader and Luke Skywalker. Fundamental difference philosophies that not even a last-minute reprieve could fix. Company is sold (and made into a Death Star).

* Dr. Evil and Scott Evil. Fight in family therapy, but eventually join forces against Austin Powers (Mike Bloomberg?) In this case, Cablevision again survives.

One scenario the analysts overlook, however, is the ironic conclusion that both sides lose. Some observers speculate that Chuck Dolan will succeed in ousting his son from the board, but the board will vote to sell off assets anyway.

"The question of what happens to the cable business and Voom and will be determined by the board, and this board will do what is best for the shareholders and what works, given the family struggle," Routh noted.