If the Family Can Get the Right Price for Cablevision, They’ll Still Have the Knicks!

This past Sunday, Dec. 30, was yet another gruesome night at

Madison Square Garden. The New York Knicks, Cablevision’s supposed jewel, blew

another one-in epic fashion. Playing the Magic, and up by 10 with three

minutes–plus to go, Allan Houston and Latrell Sprewell watched stone-faced as

the closing seconds dribbled through the floorboards. Spike Lee shook his head

at the horror of it all. Howard Stern, Chris Rock and Robert Wuhl, sitting next

to him, seemed perplexed. Throughout the sold-out Garden, boos rang out.

Somewhere out there, a stomach may have been churning, and it may

have belonged to Jim Dolan, president and chief executive of Cablevision and

chairman of Madison Square Garden. Mr. Dolan wasn’t present Sunday night-his

family’s four courtside seats underneath the Knicks basket were empty.

Wherever he was, though, it was his difficulty: Former Garden

chairman Marc Lustgarten had passed away, longtime president Dave Checketts had

been cashiered. Madison Square Garden and the Knicks were now Jimmy Dolan’s

production. And the Knicks could well be in danger of missing the playoffs for

the first time in 10 years.

The foundation of Cablevision’s empire-constructed painstakingly

by Jimmy Dolan’s father Chuck over 30 years-has been its ring of three million

wealthy cable subscribers surrounding Manhattan in Long Island, northern New

Jersey, Fairfield County in Connecticut, Westchester County, Brooklyn and the

Bronx. While Jimmy was weaned on the hard-asset side of the business-starting

out in the early 1970′s as a gofer in a Chicago Cablevision warehouse-there’s

no mistaking the fact that since becoming chief executive in 1995, Mr. Dolan

has become more closely identified with the flashy Cablevision software: the

Knicks, the Rangers, the Radio City Music Hall and its programmer, Rainbow Media

Holdings-home of Bravo, American Movie Classics and the Independent Film

Channel.

Indeed, on Wall Street these days, the buzz is growing among

traders and bankers that the Dolans might finally cash in their cable assets

and restructure as a media and entertainment company, the Knicks

notwithstanding.

The signs are numerous.

On Dec. 27, the company announced that it would lay off 600

employees and take a $55 million restructuring charge against fourth-quarter

earnings. “It is always very difficult to reduce staff; however, it is also

imperative that Cablevision position itself to achieve maximum operational

results,” said Mr. Dolan. He declined to comment for this story, but for a

family-run company like Cablevision-four Dolans sit on the company’s board,

including Mr. Dolan’s brothers, Patrick and Thomas-such a market-appeasing move

came as something of a surprise. Like all other media companies, Cablevision

was feeling the recession’s bite, and its stock-at 47 and change-was way off

its high of $91. But the Dolans have always been known for keeping the concerns

of the Street at a far remove.

Unlike its peers at AOL Time Warner, Cablevision has never been a

company to throw sweet growth promises to investors. For years, it has borrowed

and spent billions on building up its cable systems and acquiring its

entertainment assets. Profits and dividends, as with all cable companies, have

been nil, and during Mr. Dolan’s reign as C.E.O., the stock has increased more

than sevenfold. Those that didn’t like it-well, they could go elsewhere.

There was also a nicely choreographed Jim Dolan interview in the

Dec. 3 Barron’s . “Is the family so in

love with the business that they wouldn’t consider an offer to sell? In fact we

would,” Mr. Dolan said. The piece was peppered with flattering comments from

longtime Cablevision bulls like Merrill Lynch analyst Jessica Reif Cohen and

one of its largest shareholders, Mario Gabelli of Gabelli Asset Management.

All of this occurred against the backdrop of AOL Time Warner’s

losing to Comcast in its bid for AT&T’s 16 million cable subscribers. For

years, speculation has been rife that Chuck Dolan’s endgame was to build up a

suburban cable empire and then sell it for a princely fee to Time Warner, the

cable giant of greater Manhattan. While bankers say that C.E.O.-to-be Dick

Parsons aggressively bid for Comcast, a Time Warner–AT&T fusion would’ve

had to clear major regulatory hurdles in Washington. Could it be that Mr.

Parsons, with his deep Washington connections, stuck his finger in the

regulatory winds and chose to pass on AT&T? Could he be preparing to lock

in New York by bidding for Cable-

vision’s three million subscribers? Whatever the case, the market has punched

Cablevision’s stock up from a low of $33 in early November to today’s $47. “I

think the Dolans are trying to send a message to Wall Street that they are

finally serious,” said one media banker familiar with the company. “The cable

systems have reached a level of maturity, while Rainbow is growing. What smart

guys do is sell the stuff that is mature and keep the stuff that is growing.”

And if there is one thing that Jim Dolan is desperate to prove,

it’s that he is a smart guy. It

hasn’t been easy; past attempts to portray the family relationship have

backfired. For example, in Newsday in

1997, Chuck Dolan was asked what he did when he came into conflict with his son

the C.E.O.

“I let him run up and down the room until he gets tired,” Mr.

Dolan said.

“See, it’s just like it was when I was 5 years old,” Jimmy Dolan

responded.

Mr. Dolan  the Younger has also worked hard to counter

the image of himself as a somewhat callow scion by charging into a number of

deals. In early 1998, he bought electronics retailer Nobody Beats the Wiz

(renamed the Wiz) after it declared bankruptcy, and later that year he acquired

the Clearview Cinema chain. Both units remain loss-makers, and as for the

promised synergies-”Clearview theater lobbies will be a great place to display

some of our products, like our high-definition television and video-on-demand,”

Mr. Dolan said at the time-well, when was the last time you saw a Cablevision

display booth in a Clearview movie house?

Make no mistake, Jimmy Dolan is a deal guy, and there have been

some very good deals. In 1997, he made a deal with John Malone and TCI in which

Cablevision gained 820,000 regional subscribers in exchange for TCI taking a

stake in Cablevision. He also was instrumental in pulling the plug on

Cablevision’s partnership in the now-bankrupt Internet service provider

Excite@Home before other investors (such as AT&T) did. While his dad is

famous for sitting back and saying no-Chuck Dolan refused to sell out to Time

Warner in 1993-the son, say bankers who have worked with him, is always eager

to deal. Indeed, they say, Jimmy Dolan was on the verge of selling Rainbow

Media to Barry Diller early in 2001, before Chuck Dolan swooped in and took the

deal off the table.

Now-perhaps not coincidentally-Jimmy is beginning to assume a

larger public profile. He was front and center in organizing the Concert for

New York City at the Garden on Oct. 20 to raise funds for the families of the

World Trade Center victims. And he attended the press conference announcing the

signing of Allan Houston’s $100 million contract. Mr. Dolan also seems to be

easing into his identity as a media player. This March, he is set to remarry in

Florida-he has four children from a previous marriage-and Rupert Murdoch and

Viacom’s Mel Karmazin reportedly have received invitations.

Nonetheless, his presence around New York remains a little

ghostly. Forty-five years old, he lives next-door to his father. He sails a

yacht and plays the guitar in his own garage-style band, the Simpson House

Band. There are echoes of a George W. Bush–like reckless youth followed by

salvation: Mr. Dolan has admitted to having been an alcoholic and chemically

dependent, and he has been sober for the last nine years.

If there is one thing that would permanently bring him out from

behind his father’s shadow, it would be the sale of the cable systems-especially

if he could finagle a price higher than the $4,500 per subscriber that Brian

Roberts at Comcast is paying for AT&T Broadband. To that end, he has sunk

over $2 billion into upgrading the system, to a point where he thinks he can

charge over $100 per month to customers. While it’s certainly doubtful that his

subscribers will eventually be worth $10,000 a head due to all sorts of

interactive e-commerce type offerings, as he recently said to Forbes , if he can get a price well north

of $4,500, he might well do it.

It would be a smart move,

too. The growth numbers for cable subscribers remain soft, and the specter of

further market-share encroachment on the part of satellite-television providers

is a constant one. AOL Time Warner is looking to deal-and on a sentimental

note, Gerald Levin, who started out in the cable business with Chuck Dolan in

the early 1970′s, is retiring this May. So the Dolans might be very happy if

Mr. Dolan turns their Cablevision stock into cash or AOL Time Warner stock

while keeping his grip on the

really fun stuff-the Knicks, the Rangers, the Rockettes, the TV programming.

And if the Knicks don’t make the playoffs, so what? Madison Square Garden’s

cash flow will take a hit, but they’ll have the money to hire a very expensive

new coach.