Chuck Amuck: Cablevision’s Ruling Dolan Family Plots Next Big Thing: Buy or Be Sold?

The auditorium was only half-filled when the trim and tidy

little man stepped up to the podium at Cablevision headquarters in Bethpage,

Long Island. It was almost 10 a.m., time for the shareholders’ meeting to

commence. “Good morning, everybody. I’m Chuck Dolan, chairman of the

Cablevision Corporation and a director-candidate for Class B shareholders,” he

said.

After running through the other directors up for election,

he followed with a brief state-of-the-company address and then opened the floor

to questions.

“Good morning, Mr. Dolan,” a heavily accented voice piped up

from the crowd. “So I look at the numbers you talk of here, and they are so

beautiful. But I have to ask a question. Since I am a shareholder, the only

thing I do is to lose money. If the numbers are so great, why is there not just

a penny per share that you can give me?”

Mr. Dolan looked up into the crowd, more professorial than

corporate with his round-framed glasses and contemplative mien. Another stupid

question about dividends? When would they understand that Cablevision was not

AT&T, a stodgy old stock drip-dropping small dollops of cash into the I.R.A.’s

of pensioners and the like? He’d never paid a dividend in his life-why start

now, when there was so much more to buy?

“I assume you are speaking about dividends,” Mr. Dolan said,

as if talking to a young child. “We, too, look forward to dividends, but we are

not there yet. And I don’t think our shareholders would want us to dissipate

our capital structure and ignore investment opportunities just to pay out

dividends.” He paused and gave just a hint of a smile. “But I do hope we get

there.”

Chuck Dolan has a big idea. As the founder and chairman of

Cablevision Systems Corporation, the regional cable-entertainment giant with

its 3.1 million subscribers and ownership of Madison Square Garden, he wants to

be the one who offers you a seasonal diet of Rangers, Knicks and Yankees games.

He wants to provide you with movies on a range of channels, as well as 24-hour

local news, weather and traffic, and jazz concerts taped in local clubs, on the

Metro channel. And if it means taking up a more permanent residence in your

mind, he also has a Catholic cable channel in development. He wants you-all of

you. And he’ll buy or develop whatever it takes to reach you.

Because he is a nice guy, he is also planning to throw in

for free the latest digital set-top box from Sony, with all its whiz-bang

interactive and enhanced-channel features. He will charge for these services

$44 to $48 a month, which is about as high a cable bill as there is to be found

in the nation these days. But he thinks you will pay because, since the early 1970′s,

when he first came up with this idea, you always have.

He wants to do this on his own terms, in his own way, with

full control of both the business and the ideas that have made it what it is

today. And though he has taken on his son Jim, as president and chief executive

of Cablevision, it was evident at the June 5 board meeting in the company’s

Long Island headquarters just who was in charge: Chuck Dolan, the elder, the

chairman, the very vision of Cablevision. Indeed, if one didn’t recognize his son’s

signature goatee and gelled hair, one would not have known that Jim Dolan was

even there.

Chuck Dolan’s idea has manifested itself in a series of

low-slung buildings of gray glass in an office park in the Long Island suburbs.

Like a lot of good ideas these days, his is a costly one. This year he will

spend close to $2 billion on his idea, buying up and expanding his terrain, and

once again he plans to go to the market to ask investors to pay their fair

share. Chuck Dolan will also readily tell his investors that his company has

never netted a dollar in profits or paid out a penny in dividends-though the

cash certainly does flow before being evaporated by interest payments.

Perhaps the best way to look at it is: Cablevision as the

first dot-com. It’s a dreamy, expensive and profitless proposition entirely

dependent on the from-the-mountaintop salesmanship of its top guy-and utterly

reliant on a procession of financial engineers, aggressive investment bankers

and compliant banks to give it access to the vast pools of other people’s money

needed to sustain its very existence.

As one would expect, when your idea is also your company,

you go the extra mile to keep a pretty tight lid on things. So excuse Mr. Dolan

if he is just a little bit of a control freak. Take a walk around the hushed

sprawl of the Cablevision compound and you will see about as many security

guards-meaty guys with blank expressions, all dressed uniformly in red polo

shirts and matching slacks-as employees. The company has a security office called

“intelligence services.” And just outside the cafeteria is a Big Brother–esque

sign explaining the Cablevision-employee compact: 10 benefits that workers can

expect from the company (a safe and clean work environment, for example), and

what the company expects in return (adherence to Cablevision’s rules and

regulations, to name one).

Then there is his board

of directors. In a time when chief executives strive mightily to salt their

boards with ego-inflating independent directors-think Sandy Weill’s Citigroup

board, loaded with Mike Armstrongs and Dick Parsons-Mr. Dolan has taken the

opposite tack. It’s an Old World philosophy: pick your inner circle and stick

with it. Indeed, who needs a big shot like Vernon Jordan when you have board

member Dick Hochman-Mr. Dolan’s personal banker at Drexel Burnham in the

1980′s, when Drexel raised billions in junk bonds for Cablevision.

There’s also Charles

Ferris, a former Federal Communications Commission chairman in the Carter

administration, now a partner in the Boston law firm of Minz, Levin, Cohn,

Ferris, Glovsky and Popeo-a firm that not only represents Cablevision but is

also, through a subsidiary, advising Mr. Dolan in his recent pursuit of the

Boston Red Sox.

Then there is Victor Oristano, an 84-year-old wireless and

cable entrepreneur, who joined the board in 1985 after his company was acquired

by Cablevision. There’s also Vincent Tese, a former adviser to Mario Cuomo who

is also a board member at Bear Stearns, the successor to Drexel as

Cablevision’s house investment bank. Insiders all-but not as inside as the

directors elected by the Class B shareholders.

Cablevision has two classes of shares-A and B. A

shareholders have one vote per share; B shareholders have 10 votes each. The

Dolan family controls 100 percent of the Class B stock, and hence all the

votes.

At the top of their B list is John Tatta, 81, the classic

Dolan guy and a consigliere of sorts

to the Cablevision chairman. A tough-talking type from Manhattan’s Lower East

Side, Mr. Tatta was there when the soft-spoken young man from the Cleveland

suburbs needed help navigating the dank thickets of Manhattan cable-TV politics

in the mid-1960′s. William Bell, the finance whiz, has been on board since

1978, and Sheila Mahony, a lawyer with cable and public-policy expertise,

joined up in 1980. Representing the younger generation is Robert Lemle, the

company’s vice chairman and general counsel, who signed on with Mr. Dolan in

1982.

Finally, there’s the

family itself, which includes, besides Dolan père and his son Jimmy, two other Dolan boys: Patrick, a senior

vice president for news at News 12, the company’s Long Island news station, and

Thomas, the company’s chief information officer.

To all of them, Mr. Dolan is as much a Midas as he is a

Messiah. And as the company’s stock soared last year, many old hands like Mr.

Bell, Ms. Mahony, Mr. Tatta, Mr. Lemle and Mr. Oristano cashed in small bits of

their shareholdings for millions.

But not Mr. Dolan. He isn’t selling. And it’s not as if he

hasn’t had the opportunity.

Back in 1993, Time Warner’s Gerald Levin, who had been hired

by Mr. Dolan to run HBO in the early 1970′s, came back with an offer for Mr.

Dolan’s cable systems that not only would have paid him a huge premium in

stock, but would have allowed him to keep control of his programming assets.

For a year or so, Mr. Dolan’s top people-Mr. Bell, Mr. Tatta

and Marc Lustgarten, a former vice chairman of the company who died of cancer

in 1999-toiled countless hours to set up what would be Chuck’s defining deal.

All he needed to do was sign on the dotted line, and everyone would get rich.

He could sell the hardware and keep the higher-prestige software.

But he never signed. Frustrated after more than a year of

the Chuck Dolan negotiating  dance, Mr.

Levin gave up and went after option No. 2: Ted Turner and Turner Broadcasting

Systems. A year or so later, Mr. Dolan bought Madison Square Garden, and since

then the stock is up more than 400 percent.

Gerry Levin is now back. Who could blame him? Chuck Dolan’s

idea is still there, and it’s better than ever. More expensive, yes. But worth

more, too.

Let the negotiations begin.

America the Beautiful

The question is: Will Chuck Dolan sell? He’s not saying.

Both he and his son declined requests for interviews.

You would think, though, that now, halfway through his 70′s,

Chuck Dolan might be tempted. He is worth $3 billion, is happily married to his

college sweetheart and lives very nicely on an oceanside retreat in Oyster Bay,

in a compound he shares with his son. He sails 73-foot boats and loves to

travel the world with his daughter, Debbie, a world-class equestrian rider. And

he’s known in his circle as a good guy; he gives millions to the Catholic

Church, as well as to a slew of other community organizations in Oyster Bay.

“Chuck Dolan is the best thing to happen to Oyster Bay since

Teddy Roosevelt,” says Richard Aurelio, a former Time Warner cable executive

and an Oyster Bay resident himself.

Then there’s his Fourth of July bash-an annual extravaganza

at which thousands of people from the community get invited into the compound

overlooking the Long Island Sound to enjoy fireworks, the Rockettes, clowns for

the kiddies and food and drink galore. Mr. Dolan also uses the occasion to

celebrate his wedding anniversary (last year was the 50th), as well as his

daughter Kathleen’s birthday.

God, America and family-a perfect 1950′s event for a very

1950′s guy. And what’s wrong with that?

But don’t let this Norman Rockwell scene fool you. This is

still a very hungry man. He’s lived through too much to become complacent. Or

to sell.

Think about it: In 1973, at the age of 45, he had all of

southern Manhattan wired for cable; he had a young executive named Gerry Levin

pushing a revolutionary new for-pay station called HBO; and he had a deal with

Madison Square Garden to cablecast Knicks and Rangers games. Still, his little

company, Sterling Manhattan Cable TV, was losing money hand over fist.

Those were not easy days. In the recession-plagued early

1970′s, there were no junk bonds, no venture-cap funds, no daring banks willing

to take a flier on a shy little guy from Cleveland with a big scary idea about

TV.

Mr. Dolan did what he could: He turned to a strategic

investor, Time Inc., which by 1973 owned more than 80 percent of Mr. Dolan’s

company. Still the losses mounted-in 1973, to an astonishingly high $10.3

million-and Mr. Dolan had no choice: Time bought out Mr. Dolan’s 20 percent

interest in Sterling for $600,000.

They left Mr. Dolan one slice of pie, though: He was allowed

to buy back a small band of cable-TV subscribers on Long Island. Time Warner

got HBO and southern Manhattan. Mr. Dolan watched as his big idea was subsumed

into a company begun by another visionary, Henry Luce.

But from that slice grew Cablevision. To accomplish that,

however, Mr. Dolan needed cash. So he contacted a Chicago tax lawyer and formed

a number of complex partnerships, all of which he served as managing partner.

Early investors included Hugh Hefner and economist Milton Friedman, who were

attracted by the tax-shelter benefits of the cable business. And the more he

grew Cablevision, the more Mr. Dolan borrowed-from his partners, from hardware

suppliers and eventually from banks as well.

In the 1980′s, with his appetite for capital still ravenous

and with investor tolerance for risk having grown, Mr. Dolan hooked up with

Michael Milken and raised billions more in junk bonds. Ever mindful of his

experience with Time, though, in 1984 Mr. Dolan bought out his

partners-borrowing heavily to do so-and then paid off this debt by taking the

company public in 1986. Now he had the pipes, the content (a growing stable of

movie channels that soon became Bravo, American Movie Classics and the

Independent Film Channel) and the sports programming through Sportschannel (now

MSG Networks). He had enough to charge subscribers exactly what he

wanted-Cablevision soon had the highest revenue-per-subscriber ratio in the

industry.

How did he get away with it all?  

“There has always been a mystique to Chuck, going back to HBO,”

says John Reidy of Solomon Smith Barney, a former Drexel Burnham analyst. “It

was always clear that they were doing something different from the other cable

companies due to their use of multiple-tier programming.”

In late 1994, he made another giant step in that direction,

grabbing content by the handfuls with his purchase of Madison Square Garden.

It was quite a deal. Not having the funds to buy it

outright, he partnered with ITT, putting up only 13 percent of the capital

needed; ITT put up the rest. Included in the 

deal was an option for Cablevision to buy ITT out, which it did in 1997.

“It was a phenomenal deal,” remembers Mickey Tarnopol, a

vice chairman of the investment-banking division at Bear Stearns and an adviser

to Mr. Dolan on the deal. “Chuck recognized that having the content that the

Garden brings to the metropolitan area was a tremendous drawing card for

Cablevision. He really believes that it’s local sports, not national sports,

that attract cable subscribers. He is a macro thinker who sees things that

other people don’t see, and he is not afraid to invest in what he believes in.”

Get Me Phil Jackson

With that purchase and all it meant-the Knicks, the Rangers

and, later, Radio City Music Hall and some smaller venues, all of which provide

content to Cablevision’s ever-higher-paying subscribers-Mr. Dolan seemed to

have it all. A Stanley Cup soon followed. Then an almost N.B.A. championship.

But seven dry years is a long time in Dolanland-as both Ernie Grunfeld and Dave

Checketts found out.

Meanwhile, Mr. Dolan’s idea has been validated many times

over. Mel Karmazin, Mr. Levin, Ted Turner, Mike Armstrong at AT&T, his old

pal John Malone, they all echo the Chuck Dolan mantra: Content is king. It’s

fine to have the box, but it is what’s inside the box that is important.

Which is why he is making the big bet on his digital box and

the increased access to Cablevision content he thinks it will provide. It’s a

classic Chuck Dolan strategy: lay out big for a value-added feature, then

charge the customer an arm and a leg for it.

AT&T sees this one differently. It announced this month

that it was scaling back its set-top-box strategy due to cost and

customer-taste concerns. But what does AT&T know? Though it has a 30

percent share in Cablevision, Mr. Dolan surely won’t be taking his cues from a

badly run, over-leveraged distribution company that is sadly lacking its own

version of the Idea.

Mr. Dolan, it appears, is still fine-tuning his idea,

testing the market to see where it will take him-and his sons-next. He recently

spun off all his programming assets to a tracking stock called Rainbow Media

Group while enhancing his focus on the company’s content hub, Madison Square

Garden. Mr. Dolan was no doubt sad to see Dave Checketts go-the Mormon-on-the-outside,

Gordon-Gekko-on-the-inside personality surely appealed to the old man. But Mr.

Checketts was never family, and for a non-Dolan he may have liked the limelight

just a bit too much. And with the Garden empty this June-and his son Jimmy,

also the Garden chairman, champing at the bit-something had to be done.

So now it is Jimmy Dolan’s time. He’s got Phil Jackson’s

cell-phone number; he is pals with Wayne Gretzky; the internship is over.

Indeed, by all accounts, the younger Mr. Dolan has matured as an executive. He

is no longer the callow, shoot-from-the-hip chairman’s son who would strike

fear in the hearts of Garden employees whenever he made his rounds. He has been

running the Wiz (the troubled retail-electronics outlet bought by Cablevision

in 1998) and has been overseeing the company’s digital strategy.

Still, even with young Jim Dolan moving to the top of the

Cablevision mount, Chuck Dolan plays on, front and center-at the annual

shareholders meeting and at the negotiating table with his old friend, Gerald

Levin.

Which is most likely

fine by Jimmy Dolan. “This is not Nepal,” says one longtime acquaintance of the

family. “This is not where some guy comes in and shoots the royal family and

says ‘I’m king.’ In this family, Dolan is king and his first name is Chuck.”