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.”
