Mark Cuban wants a little R-E-S-P-E-C-T
Seven years into his effort to disrupt the sports and entertainment industries, Web 1.0's Richie Rich is learning some hard lessons, writes Fortune's Devin Leonard.
(Fortune Magazine) -- "How stupid do I look?" asks Mark Cuban.
He knows the answer. The 49-year-old billionaire owner of the Dallas Mavericks prances with all the grace of a circus bear in a dance studio uptown in his adopted city. He is trying to learn the rumba for his upcoming appearance on ABC's Dancing With the Stars. Seven weeks ago he had his hip replaced.
"This is the toughest workout I've ever done," he says during a break. "It's killing me."
Mark Cuban wasn't always this clumsy. In 1999 he pulled off one of the nimblest bits of market timing when he sold his fledgling company Broadcast.com to Yahoo (Charts, Fortune 500) for $5.7 billion at the height of the Internet bubble. He personally walked away with more than $1 billion.
So if he's rich, what's he doing performing in a humiliating primetime ritual normally reserved for celebrity roadkill like Marie Osmond?
He claims he's going on Dancing With the Stars for his 4-year-old daughter, Alexis, who loves the show. But the true answer is a window into what makes Cuban tick. For him, it is not enough to be rich. He wants to be famous and influential, much as he might argue otherwise. He clearly feels the need to show the business world that he's more than a rabid sports nerd from a Pittsburgh suburb who cashed out at the top of the dot-com craze (thanks to a company that streamed live games over the web to other rabid sports nerds).
Currently he is attempting to reorder the landscape in several high-profile industries - pro sports and entertainment, to name two. How these multimillion-dollar bets play out in the future will have a lot to do with whether he gets the respect he feels he deserves.
Cuban has been an effective if decidedly boisterous team owner. He purchased the Mavs for $280 million in 2000, and they are now valued at more than $400 million. The team, however, has the league's second-highest payroll - $85 million - and it has yet to win a championship. It lost last season in the playoffs to the Golden State Warriors, the team overseen by Don Nelson, the same coach that Cuban drove out of Dallas.
In 2001 he launched HDNet, one of the first high-definition networks, which he says will eventually eclipse Internet video as the future of television. So far, he's having a tough time getting it seen coast to coast.
With his longtime partner, Todd Wagner, Cuban is also trying to rethink the way Hollywood works - distributing arty yet uncommercial movies like Crazy Love, the critically acclaimed documentary about a 32-year-old married lawyer who threw acid in his young lover's face and later married her. (Knocked Up it ain't.)
Wagner and Cuban also own Landmark Theaters, a 282-screen art-house movie theater chain. Cuban says the combination of these assets gives him the ability to experiment with new kinds of content creation and distribution that media giants like Viacom (Charts) and Time Warner (Charts, Fortune 500) (owner of CNNMoney.com and Time Inc., Fortune's parent) are afraid to try themselves.
When Cuban starts a business, it tends to be a heavily hyped affair. But it's now seven years into Cuban 2.0, and it's time to take stock. The entrepreneur made his fortune by co-founding two companies - Broadcast.com and before that, MicroSolutions, a computer sales and consulting company - both of which he flipped within seven years.
He doesn't seem poised for another big score anytime soon. The truth is, Cuban's pursuit of his next big thing has been as awkward at times as his rumba.
His courtside antics at Mavericks games, which include berating the refs, have gotten him in trouble with the NBA. They have alienated him from his fellow basketball team owners, some of whom control cable systems and refuse to carry HDNet. (The upshot is that Cuban's network isn't available in 49% of the country's cable homes.)
His behavior is unlikely to help him in his quest to buy the Chicago Cubs, a franchise said to be worth at least $1 billion. He has also ticked off National Football League owners by supporting Hambrecht & Quist founder Bill Hambrecht's crusade to start an alternative gridiron league that will challenge the NFL.
Part of the problem is that the same laddish 'tude that made him a great new-media pitchman in the '90s may be holding him back in his old-media efforts today.
In a way, that is a shame. Is there anyone out there who doesn't think Hollywood and pro sports could use some fresh thinking? Cuban is a font of interesting ideas, and he's willing to put up significant amounts of his own money to test them. (He's even invested in a company known for high-tech toilets.)
With so much at stake, it's hard to understand why he can't exercise a little self-control. He still seems to be playing to his college buddies, who nicknamed him Disco at Indiana University, where he was known for taking two shirts to parties because he perspired so much while dancing.
So when will Mark Cuban grow up?
Cuban is fond of describing himself as the "luckiest mother-fucker on the planet." Truth be told, he's the last guy anyone would have expected to become a billionaire.
He grew up in the Pittsburgh area, the son of Norton Cuban, who toiled for 50 years in a car upholstery shop. (His last name was shortened from Chabenisky when his Russian grandparents landed on Ellis Island decades ago.) When Mark was 12, he asked his dad for a new pair of tennis shoes. His father, who was playing poker and drinking with his pals, refused. He said if the ones on his son's feet weren't good enough, he could get a job and buy whatever he pleased.
One of Norton Cuban's friends had an idea: Why didn't young Mark go door-to-door selling garbage bags? Mark took him up on it. Soon he was hawking other things: stamps, coins, baseball cards. At Indiana University, Cuban bought a Bloomington bar and renamed it Motley's. He raised money by selling shares in the bar to his friends. Cuban drew crowds by offering cheap drinks. When he wasn't spinning records, he schmoozed customers.
"People came to see him," recalls Evan Williams, one of Cuban's investors. "When he wasn't there, [Motley's] just didn't do as well."
Cuban doesn't tire of relating how his stint as a bar owner came to a halt when local liquor-control officials discovered that the winner of a Motley's wet T-shirt contest was a 16-year-old girl on probation for prostitution. It's all part of the slightly embellished rags-to-riches saga he's fond of serving up.
Very little is off-limits with Cuban. ("Let's just say I was a virgin when I graduated from high school," he told Fortune.) After college, he moved to Dallas "for the fun, sun, money, and women." There he fell into computer sales. Cuban flourished in this environment. He and former Texas Instruments (Charts, Fortune 500) executive Martin Woodall founded MicroSolutions, a company that sold and installed hardware and software.
"Large groups of us used to go out and party," recalls his friend Jeff Swaney, now a Dallas real estate developer. "You'd meet someone. [They'd say] 'I'm the computer person.' As soon as Mark heard that, he'd be swapping business cards."
In 1990, Cuban and Woodall sold MicroSolutions to H&R Block's CompuServe division for $6 million, just as PC prices started to fall. Cuban moved to Los Angeles, where he day-traded and took acting lessons.
"I was on Walker, Texas Ranger," he says proudly.
Still, Cuban grew bored, and when another of his drinking buddies, Todd Wagner, a lawyer and CPA, came to him in 1995 with a proposal to start AudioNet (later renamed Broadcast.com), a company that would stream college sports events on the Internet, Cuban leaped at the chance. It was a perfect fit for Cuban, an avid college basketball fan who would call friends in Bloomington and have them put the phone up to the radio so he could listen to games.
Once again Cuban's timing was fortunate. Broadcast.com's 1998 IPO was a smash. The stock was priced at $18 a share, but it climbed to $62 at the end of the first day. Cuban and Wagner spent the afternoon at a Wall Street bar, drinking shots every time Lou Dobbs mentioned the company's name on CNN.
"That was a lot of shots," Cuban happily remembers. "We were toasted." He was also $85 million richer.
Cuban was shrewd enough to know that the Internet bubble wouldn't last forever. Broadcast.com was a long way from turning a profit. But it had exclusive deals to stream the games of more than 450 college and pro sports teams, along with 410 radio stations and 50 television networks.
"We went to Yahoo and AOL, which we both knew very well, and said, 'Either you buy us or you are going to play catch-up,'" says Wagner.
Yahoo took the bait. It was 1999, and the company was in the midst of an acquisition spree using its own inflated stock as currency. It added Broadcast.com to its shopping cart. The deal closed, and Cuban was worth more than $1 billion in Yahoo stock.
Then the bubble burst. Yahoo abandoned its plan to use Broadcast.com as its primary audio and video portal. "Broadband wasn't pervasive, for heaven's sake," says Jeff Mallett, who oversaw the Broadcast.com acquisition as Yahoo's COO. "We'd hoped to do video advertising, but the whole bucket for that space was only about $1 billion - not $20 billion like it is today."
Today Yahoo tries to put the best face on the ill-fated acquisition, saying that it used Broadcast.com's infrastructure as the backbone for its other media divisions. In other words, it's not as though it paid $5.7 billion and got zip in return.
In the wake of the Yahoo sale, Cuban had other things on his mind than Broadcast.com's fate. He and Wagner went to Goldman Sachs and had the investment bank structure a collar - selling calls and buying puts on Yahoo stock - that locked in the value of their paper profits.
Now that Cuban was a billionaire, he wanted to live large. He bought his ten-bedroom Dallas mansion from a subprime mortgage lender who was in financial trouble. He bought a Gulfstream on the Internet. He also purchased two apartments in Trump International Hotel & Tower, overlooking Central Park.
In 2002 he married his longtime girlfriend, Tiffany Stewart, in a celebration that had the trappings of a coronation.
Cuban's friends talk about the plane ride to his bachelor party in Las Vegas as if it were Led Zeppelin's Starship. The plane flew from Dallas to Pittsburgh to Chicago to pick up 40 of his closest friends. Ben Kadish, one of Cuban's college roommates, was among the last to board the plane, at O'Hare Airport.
"There were a couple of tubs of beer on ice, a couple of strippers," he recalls. "They closed the doors. We turned the music up on the plane, and said, 'All right, the party starts now!'" (Cuban says the women on the plane weren't strippers but "dancers.")
The wedding reception at Dallas's American Airlines Center, the Mavericks' home, was a bit tamer, but not by much. Sammy Hagar, former lead singer of Van Halen and current tequila shiller, provided the entertainment. Everybody was there - Cuban's boyhood buddies, people from MicroSolutions, Broadcast.com, and the Mavericks.
"It was a blast," Cuban recalls. "I don't remember much after the Cabo Wabo started flowing."
Like many a rich guy before him, he also bought a sports team. When Cuban picked up the Mavericks in 2000, the team was a joke. It had been ten years since it had been in the playoffs. Nobody went to games - well, nobody but its future owner, who had season tickets and yelled at the players and refs during the game.
After purchasing the team, Cuban set out to change things. The Mavericks had a respected coach, Don Nelson, and two future MVPs, forward Dirk Nowitzki and point guard Steve Nash. But something was missing.
"I remember when I got there sitting and talking to [Nelson]," says Cuban. "We were 9-23, and he was like, 'Look, we could bag the rest of the season to get a top draft pick.' I was like, 'No, we've been ten years out of the playoffs. At some point, you have to learn how to win.'" (Nelson's lawyer, John O'Connor, disagrees with this version of events: "I wasn't there. But Cuban has a very active imagination.")
Cuban managed his players with a carrot and a stick. He flew them around in a jet that was so plush Tom Cruise rented it last year to fly his guests to Italy for his wedding to Katie Holmes. At the same time, the Mavericks' new owner wasn't above storming into the locker room and cursing them out when they lost, or going on the court during games and listening in on their huddles.
The fans adored him. When the Mavs won, Cuban bought the first $2,000 worth of drinks at the arena bar. He handed out free tickets to hot women so they'd come to the games. And Cuban still railed at referees during games - and on his blog.
So what if the NBA fined him repeatedly? Cuban would donate the same amount to charity just to remind everybody how rich he was.
Once he was fined $500,000 for saying that the league's manager of officials, Ed T. Rush, "wouldn't be able to manage a Dairy Queen." Dairy Queen took exception. So Cuban spent a day at Dairy Queen in Coppell, Texas, serving Blizzards to delighted Mavericks fans. He got a nice note afterward from Berkshire Hathaway CEO Warren Buffett, whose company owns the ice cream store chain.
By the spring of 2001 the Mavericks had made it to the playoffs, and the team was selling out every home game. Then, in 2003, Cuban had a bitter falling-out with Mavericks coach Nelson, who departed for the Golden State Warriors after finishing out his contract three years later. Nelson filed an arbitration claim that accused the Mavericks owner of withholding $6.5 million in deferred compensation. (Cuban says the claim is specious.)
Things got worse before they got better: Nash departed for the Phoenix Suns in 2004 after becoming a free agent. That left Cuban with Nowitzki as the team's only star. Meanwhile, his fellow NBA team owners were tiring of his official-bashing.
Pretty soon, it all came to a head. Even without Nash, the Mavericks made it to the 2006 finals, where they faced the Miami Heat. In game five, Cuban went ballistic. The Mavericks lost by one point. Cuban blamed the defeat on the officiating.
The Miami Herald reported that he turned to NBA commissioner David Stern and screamed, "[Bleep] you! [Bleep] you! Your league is fixed!" Cuban denies that he said these words. Even so, he was fined $250,000. The money was nothing to him.
He was devastated, however, when Miami went on to win the NBA championship. Cuban didn't come out of his house for three weeks. "I didn't want to face anybody," he says. Cuban also came close to putting the Mavs up for sale.
The NBA tried to muzzle him, passing what has been referred to as "the Cuban rules of conduct." The rules barred owners from venturing onto the court during games.
"The league's view," says Cleveland Cavaliers majority owner Dan Gilbert, "is that when [Mark] criticizes something, he's really criticizing his [NBA] partners. You can do that, but you shouldn't do it in public." (Gilbert is quick to add that he isn't sure the new code was necessary.)
Cuban walked out before the vote. "I was pissed that, of all the things the league needed to pay attention to, this was on the top of their list," he says. "It showed how political the league is. But I'm well past that."
Stern is more coy. "There were people who felt that I had been too - how shall we say it? - bending and forgiving," says the NBA commissioner. He says more stringent rules were called for to prevent individual owners from overshadowing the games.
Since then, the two have patched things up. But it's too much to expect Cuban to act like any other NBA team owner. The Mavericks won 67 games last season, more than any other team in the league. Then the team fell apart in the playoffs against none other than Golden State, now coached, of course, by Cuban nemesis Don Nelson.
Again Cuban caused a stir by accusing Nelson of using inside information to achieve his victory in the salary-arbitration case. (Nelson's lawyer fumes that it's nonsense.) "Mark's used to getting his way," says Cuban's old pal Jeff Swaney. "He needs to get over that. I've told him, 'Be careful. Everybody's going to think you're crazy.'"
The words "freshman dorm" come to mind when you enter Cuban's wood-paneled home office, where he presides over his business empire almost entirely by e-mail. The bookshelves are filled with basketballs. His desk is littered with DVDs, software boxes, and iPod paraphernalia.
An old Star Trek episode on HDNet plays silently on the huge 102-inch TV in the corner near the fireplace. For all the attention Cuban has gotten for owning the Mavs, HDNet is far more important to him as a business venture. He boasts that the network could be as lucrative for him as Broadcast.com, and it is another chance for him to demonstrate his ability to spot technology trends and capitalize on them.
Cuban decided to start the channel nearly seven years ago when he stumbled on a 90-minute high-def loop of a crocodile, some kayakers, and some old sports reels on DirecTV. Cuban smelled another paradigm shift in the works.
He was convinced that the price of LCD sets would decline - just like PCs - driving demand for high-definition channels. But cable and satellite television providers had limited bandwidth, meaning there could be only so many high-def channels. If he got in early, Cuban believed, he could create the CBS (Charts, Fortune 500) for this new technology. In September 2001 he launched HDNet on DirecTV.
Now that he had a television network, Cuban needed content. He joined forces once again with Wagner to create a vertically integrated entertainment company - one that would produce movies like George Clooney's Academy Award--nominated Good Night, and Good Luck, and teach Hollywood a lesson in moving product.
With theater attendance on the wane, some of the movie industry's most powerful figures - Disney's Bob Iger and Time Warner's Dick Parsons - were talking about releasing DVDs of movies shortly after they premiered in theaters. Ticket sales might suffer, but that would be more than offset by higher DVD proceeds.
Cuban seeks to cure cinema's woes
Wagner and Cuban wanted to go a step further. They decided to release a movie simultaneously in theaters, on DVD, and on HDNet. They got a tremendous amount of publicity by signing up Steven Soderbergh, the Academy Award-winning director of Traffic, to direct Bubble, their first test film.
Fearing that simultaneous release would doom their industry, theater owners boycotted Bubble. Reading the reviews, moviegoers did too. Not surprisingly, Bubble's financial results were underwhelming.
Tom Adams, president of Adams Media Research, says there's no way Cuban and Wagner could have broken even on Bubble's $1.6 million production budget, in part because of the boycott, but also because nearly 50% of the DVDs were returned by retailers. Wagner says Bubble was profitable.
Teaching old media new tricks is hard enough. It is harder still when you alienate key strategic partners, as Cuban did while trying to get HDNet off the ground. Three of the nation's largest cable operators - Comcast (Charts), Cox, and Cablevision (Charts, Fortune 500) - have refused to carry the channel or its sister network, HDNet Movies.
None of those companies would comment. But Comcast owns the Philadelphia 76ers, and Cablevision owns the New York Knicks. Apparently their controlling shareholders - Comcast's Roberts family and the Dolans of Cablevision - had already had their fill of the Mavericks' owner in the NBA.
Cable industry sources say the reason for the companies not carrying HDNet may be simple business: HDNet's programming mix (World Extreme Cagefighting Live and defrocked former CBS anchor Dan Rather's new show) isn't that compelling.
Second, they say Cuban is asking way too much money for his network. Rather than just refuse to carry HDNet, Comcast and Cox joined forces with Time Warner to create MOJO, a competing HD channel known in the industry as "the Cuban killer."
Being shut out by the cable companies has surely been painful for him. ESPN HD (Charts, Fortune 500) debuted more than a year after HDNet. But today it boasts 13.8 million subscribers, compared with HDNet's 6.8 million, according to SNL Kagan.
Cuban disses again on Internet video
There's a knock at the door of Cuban's mansion. It's the morning after his dance lesson. A camera crew is here to film him as he meets his Dancing With the Stars partner, Kym Johnson, who previously paired with 'N Sync's Joey Fatone on the show. "Have you danced before?" Johnson asks amiably.
"It's been a while," Cuban says. "I just had my hip replaced," he adds, then assures her everything will be fine as long as she backs off anytime he screams.
In such moments, it's hard to imagine him passing muster with shareholders, a board of directors, or any of the other conventional apparatus that comes with being a publicly traded company. Cuban says he has no plans to take his companies public.
But that could change. None of them are very profitable. If he can't sell them, he may have to go the IPO route again if he wants another big payday. What then?
Cuban faces similar obstacles as he extends his reach in the sports world. The alternative football league seems in limbo. Cuban says it's been months since he spoke to Bill Hambrecht (who also declined to discuss the upstart football league with Fortune).
So if Cuban wants a higher profile in sports, he must add the Cubs to his empire. To do so he'll have to raise more than $1 billion - far more than he did to buy the Mavericks - and he's up against an array of formidable competitors, notably John Canning Jr., CEO of the Chicago-based private equity group Madison Dearborn Partners and a close friend of Major League Baseball commissioner Bud Selig. (See "Chasing the Cubs")
Cuban cryptically acknowledges that his image as a controversial basketball team owner may be undercutting him. "It works against me in multiple situations," he says. In particular, he cites his dealings with "professional sports leagues that might not consider me because of what they've read."
Even if Major League Baseball's owners, who must approve any sale by a three-fourths vote, had never read a word about Cuban, it's doubtful they would welcome him into their fraternity. Yankees owner George Steinbrenner has done some bombastic things in his day, but he never appeared on primetime dressed like a hobo foxtrotting to "King of the Road."
Sure, it might be more fun to drink Cabo Wabo with Mark Cuban than John Canning. But in business, it also pays - and pays off - to have respect.