Cooke’s Recipe : Media Figure Has Built a Fortune Buying Assets That Appreciate in Value Even if They Lose Money

Marc B. Nathanson, chairman of Falcon Cable TV in Los Angeles, was having dinner recently at Madeo, a fashionable Italian restaurant in West Hollywood, when he saw his old friend Jack Kent Cooke. Nathanson worked for Cooke in the early 1970s, and now Nathanson’s company is part of a consortium of six companies buying Cooke’s cable-TV business for $1.6 billion.

Cooke figures to make about $300 million from the deal, and as the two chatted Nathanson kidded Cooke about what he was going to do with the money. “He said with a twinkle in his eye, ‘I’ll find a way to spend it,’ ” Nathanson recalled.

Cooke has never had trouble spending--or earning--money. Forbes magazine pegs his net worth at more than $1 billion, and Cooke has made fortunes in newspapers, cable, real estate and sports. Although he owns the Daily News in Woodland Hills, which competes with The Times, Southern Californians probably know Cooke best for his former ownership of the basketball Lakers and hockey Kings in Los Angeles and his construction of the Forum in Inglewood.

Indeed, many of Cooke’s current holdings have reputations matching his status. The Chrysler Building in New York City and the Washington Redskins football team are part of his empire, and he owns Elmendorf Farm, a horse-breeding and racing farm in Lexington, Ky. Cooke lives most of the time on a 640-acre farm in Middleburg, Va., although he just finished buying and remodeling a house in Bel-Air at a cost of about $8 million.

Cooke is 77, but he doesn’t give any sign of slowing down. So what will he do with the money from his cable TV sale? Cooke did not return repeated calls requesting an interview nor did Daily News Publisher David J. Auger. James Lacher, who runs Cooke’s media properties, declined to comment.

But R. Steven Morris, who was publisher of the Daily News from 1987 until last June, when he left after a falling out with Cooke, said he knows the answer. “It’s blindingly clear what Cooke’s going to do. He is very interested in using the gains from the cable properties . . . to buy newspapers.”

If so, he would be returning to his roots. Cooke earned his first million by building a media empire with Canadian press magnate Lord Thomson. In addition to the Daily News, Cooke owns at least seven small-town newspapers in places such as Socorro, N.M., and Steamboat Springs, Colo. In recent years, Cooke unsuccessfully bid for larger papers such as the Detroit News, the Louisville (Ky.) Courier-Journal and the Bridgeport (Conn.) Post-Telegram, according to sources who asked not to be identified.

“His first love has always been the newspaper business, and it wouldn’t surprise me to see him expand his holdings,” said Alan I. Rothenberg, a Los Angeles lawyer who has represented Cooke at various times over the past 20 years.

Although Cooke’s empire is a private one, Cooke Media Group in Woodland Hills, which owns the Daily News and some of his cable businesses, must file its results with the Securities and Exchange Commission because it issued debt securities to the public. The filings show that Cooke has proved to be deft at finding and developing assets that rapidly appreciate in value--even if they lose millions of dollars in the interim.

About 2 1/2 years ago, Cooke bought cable systems scattered over 20 states from McCaw Cablevision and First Carolina Communications for about $1 billion, most of it borrowed. Because its debt payments were so high, Cooke Media Group lost $21.5 million in 1986, $78.9 million in 1987 and $104.3 million in 1988, according to SEC filings. And as of June 30, Cooke Media’s debts were a hefty $950 million, compared with assets of $839 million.

No matter. The cable systems and newspaper threw off enough cash during those years to cover the debt payments. In the meantime, cable properties commanded higher and higher prices, so that Cooke, who paid $1,800 per subscriber for the systems, is selling them for $2,370 per subscriber, said Sharon Armbrust, a senior analyst at Paul Kagan Associates, a cable research firm in Carmel.

Cooke will get $1.6 billion for the cable companies--the deal should close next year--and after taxes and paying off the cable debts, it should net him at least $300 million.

Besides having the money to buy more newspapers if he chooses, Cooke has other things on his shopping list. He has said he wants to build a new football stadium in Washington to help his Redskins boost revenues. The team plays in the antiquated, 55,750-seat RFK Stadium, which Cooke leases from the city. Formal plans have not been approved, but city officials say a new stadium, seating about 78,000, could cost Cooke $150 million.

Despite Cooke’s age, it seems unlikely that he will retire. He has retired more than once only to get bored. He once said, “Money is duller than peanut butter. Work is what’s exciting.”

He married his third wife, Suzanne, in 1987, when she was 31 and he was 74. But they were divorced the next year after she gave birth to a daughter.

Cooke does have two adult children, but it is unclear whether they will take over his empire. Son Ralph, 52, has been active at his father’s ranch, while son John, 47, is senior vice president and owns 10% of Jack Kent Cooke Inc., the family holding company based in Middleburg. (His father owns the rest).

Some who know the elder Cooke doubt that John Cooke is being groomed to succeed his father. One Cooke colleague said, “If the mantle was being turned over, it would have been turned over long ago.” John Cooke did not return calls seeking comment.

But for years Jack Kent Cooke has been running things in his own style. Nathanson tells how in 1973, when Cooke ran the cable-TV company Teleprompter, he asked Cooke for a job. Nathanson was invited to Cooke’s apartment at the exclusive Waldorf Towers in New York. Appearing in his pajamas and bathrobe at 11 a.m., Cooke asked Nathanson point-blank if he wanted the job. Nathanson asked Cooke what exactly the job was. “The job is working for Jack Kent Cooke,” Nathanson recalled Cooke saying.

Startled, Nathanson said he would have to talk it over with his wife. Cooke told him, “If you have to talk to your wife, you’re not the kind of man I want working for me.” Nathanson went home to California.

A week later, Cooke called him back to New York. Cooke asked him, “ ‘I have one question. Are you smart?’ I said, ‘I think I’m pretty smart,’ ” Nathanson recalled. “He said, ‘If you’re so smart, how come you’re not a millionaire as I was at your age?’ ” Nathanson, who was in his late 20s, answered, “I’m looking to become one by working for you.” Cooke hired him.

There is no denying that Cooke was a young man in a hurry. The Canadian-born Cooke worked as an encyclopedia salesman and bandleader, then launched his investment career as a protege of Lord Thomson, whom he met in 1936. Over the next 13 years the pair bought assorted newspapers, radio stations and magazines. Cooke continued running media properties until the early 1960s, when he moved to the United States. He was made a U.S. citizen in 1960 by a special act of Congress.

In 1965 he bought the Lakers for $5.2 million. Shortly thereafter, he acquired a National Hockey League franchise and formed the Kings. He built the Forum for $16 million. But in 1979, after divorcing his first wife after 42 years of marriage, Cooke sold the Lakers, the Kings and his 13,000-acre ranch in the Sierra foothills for $67.5 million to Jerry Buss. That same year, Cooke bought the Chrysler Building for $87 million; its current market value approaches $400 million.

He also was busy managing back to health Teleprompter, which by the mid-1970s was the nation’s biggest cable operator--and nearly broke. On one of Teleprompter’s darkest days, Cooke met with the company’s bankers, who were worried about whether he could salvage the operation. As Nathanson recalled, Cooke took out his keys, dumped them on a table and told the bankers, “ ‘If you want to run it, here are the keys. If not, let me run it.’ ” The bankers left the keys on the table. After Teleprompter was turned around, Cooke sold it to Westinghouse in 1981, with Cooke getting $76 million for his stock.

In recent years Cooke has turned his attention back to newspapers. In December, 1985, he bought the Daily News for $176 million from the Tribune Co. And in the past couple years Cooke’s Raljon Publishing Co. unit (named after his two sons) bought several small papers, many in resort towns, for undisclosed amounts, including the Deming (N.M.) Headlight; the Valencia County News-Bulletin in Belen, N.M.; the Ruidoso (N.M.) News and the Steamboat (Colo.) Pilot.

Why would Cooke buy more newspapers? Morris said they are assets with the potential for rapid gains in value--the classic Cooke investment. Granted, newspapers lately have suffered from sluggish advertising revenue, as local TV, radio, catalogues and direct-mail firms become more competitive for advertisers’ dollars. But even in economic recessions, “a daily newspaper that has maintained its franchise is the major advertising vehicle in its market,” said John Morton, a media analyst in Washington with the investment firm Lynch, Jones & Ryan.

As a result, daily newspapers a decade ago were sold at prices averaging about $1,000 per subscriber; today the price averages $1,500 to $2,500 per subscriber, Morton said. And with only 400 or so existing dailies that are not already part of newspaper chains, those that remain are in great demand--further bidding up their prices, he said.

When Cooke bought the Daily News, many thought he overpaid. The $176 million he offered was 44 times the newspapers’s 1985 profit, an exceptionally high multiple. And due to Cooke Media Group’s debts--Cooke borrowed $160 million of the purchase price--the Daily News has yet to turn a penny’s profit, according to SEC filings.

The newspaper’s pretax income from operations--and before interest costs on its portion of the debt--fell to $98,000 in 1988 from $764,000 the previous year, even though its revenue last year climbed 10% to $105.1 million from $95.9 million. Add in the newspaper’s share of Cooke Media’s debt, and the Daily News had a net loss of $18 million in 1988, $14.7 million in 1987.

But Morris, the ex-Daily News publisher, said the paper’s operating cash flow--its income before depreciation and amortization charges, interest and taxes--was about $14 million the year Cooke bought it. Today, the Daily News’ operating cash flow is more than $20 million, and newspapers are selling for 25 times that figure, he said.

Using that formula, the Daily News today might sell for $500 million, or nearly three times what Cooke paid. Another newspaper analyst said Morris’ sales figure was inflated by at least half. In either case, it underscores Cooke’s formula: Don’t worry about annual profits or losses, worry about how a business can jump in value whether it earns money or not.

If Cooke pays off much of the paper’s debt with cash from the cable sale, the Daily News’ performance could improve markedly. Cooke already is spending $53 million to build the Daily News a new printing plant, which is supposed to boost the paper’s press capacity by more than 50% when it opens within a few months. And the paper’s daily circulation has grown from 143,200 before Cooke bought it to 186,000 as of Sept. 30.

Whether Cooke will divest the Daily News as he did the cable systems is unknown, of course, because the vision of Cooke’s operations rests with one man. And he’s not talking.