Trouble in the House of Redstone: National Amusements : Sumner Redstone : Showcase Cinema De Lux : Shari Redstone
As a private company, National Amusements is closely held, its internal machinations shrouded from the public. Sumner owns 80 percent of the company and Shari owns the rest. Yet because their majority voting stakes in Viacom and CBS are held through National Amusements, the fates of several huge public corporations are subject in many ways to the whims of this famously peevish pair.
Though Shari was once Sumner’s favored child and heir apparent, the two have engaged in an epic, if sometimes juvenile, struggle for power in recent years. She has challenged him over his salary and charitable giving, while he has blasted her as being unqualified and ungrateful. At one point, the two were communicating only by fax.
Until last year, however, there was little public understanding of what was truly at stake in their fight. That changed on October 10, 2008, when it was revealed that National Amusements was carrying more than a billion and a half dollars of debt. The company had taken out two $800 million loans, borrowed against the value of its stock holdings. When the economy collapsed and the stock value began to slide, those debts seemed potentially catastrophic. Suddenly, a vast constellation of Redstone properties looked vulnerable.
Within days of the announcement, Shari and Sumner were pointing fingers at each other over National’s predicament. People in Sumner’s camp told the Wall Street Journal that "in large part, the loan was used to expand the movie-theater chain…. Shari Redstone has been building the business aggressively." Shari’s flacks countered by blaming the bad economy, not the spending on new theaters.
In response to the crisis, National Amusements prepared to reduce its enormous debt by selling off most of its 118 multiplexes. The plan would raise new doubts about Shari’s future as Sumner’s would-be successor—and presage an ignoble end to one of New England’s most storied family businesses.
A simple question lay at the heart of the Redstones’ blame game: What were those ill-timed loans used for? Sources confirm to Boston that a big chunk of the money did, in fact, go toward expanding the chain. The rest, though, was used by Sumner on a stock play.
Sumner had spent 25 years and an estimated $700 million buying an 87 percent stake in Midway Games, a video-game company best known for the Mortal Kombat franchise. In theory, video-game characters and story lines could be parlayed into Hollywood products, which would generate gobs of cash. But Midway had been a dog for years, losing $150 million from 2006 through 2007 alone.
Shari had long opposed the Midway investment, but with only a minority stake in the family business, all she could do was complain. She grumbled even as her father installed her on the Midway board in 2004.
For the "vainglorious old-school egomaniac," as writer Michael Wolff once described Sumner, dissent verged on treason. Still, Shari grew angrier as Sumner performed various feats of financial gymnastics to shuffle debt and stock in and out of National. She disagreed with his business decisions, but perhaps more than that she chafed at being reminded of her own lame-duck status each time her father used National to bail himself out of a jam.
The flashpoint in their deepening fissure came when Sumner’s lawyers cooked up a tax gambit for Midway. Although the Mortal Kombat franchise alone was once valued at around $100 million, according to sources, Sumner unloaded his full Midway stake last year for a paltry $100,000 to a lucky private investor. The goal was simple: Dump the stock and reap over $700 million in write-offs for National to help ease its crushing debt. However, the giveaway accelerated Midway’s descent into bankruptcy and dragged both Redstones into a lawsuit in Delaware that alleges they breached fiduciary duties by croaking the company to benefit themselves. The debacle stands out as the worst investment of Sumner’s career. It also hastened the demise of his relationship with Shari.
"The way you make a billion dollars is you ignore all the people who say you’re doing the wrong thing," says Laura Martin, a media analyst for Needham & Company. "Sumner ignored them in Midway and it didn’t work out for him."
As costly as Sumner’s Midway folly may have been, Shari’s own ambitions for the family business weren’t cheap, either. While she disliked her father using National Amusements for his own interests, she poured money into the theater chain—a move that went against Sumner’s wishes, says a longtime family adviser who spoke with Boston on the condition of anonymity. "Sumner didn’t want to build anymore. He was ready to sell. He didn’t want to spend a nickel more on the theaters," says the adviser. "Shari went the other route."
Why? She hoped to prove herself. "It was important to break out on my own and have something that was not my father’s territory,” she told the New York Times in 2004. ‘‘I needed to find a way to differentiate myself from him.”
And if that meant defying her father, so be it.