For Ergen, Another Game With Big Stakes

Before founding EchoStar Communications two decades ago, Charles Ergen made a living as a professional blackjack player. But until recently, he’d never played a game with such big stakes.

Two months ago Ergen jumped into a bidding match against News Corp.’s Rupert Murdoch for General Motors’ controlling stake in satellite broadcaster DirecTV. Ergen asserted to GM’s board that an EchoStar-DirecTV deal would result in billions of dollars in cost savings, which would be passed on to the auto maker. GM will retain about 11% ownership in the combined company.

In the end it was compelling enough that News Corp., widely favored to win the bidding for DirecTV, last week withdrew its offer in frustration. EchoStar will pay about $26 billion in cash and stock for GM’s Hughes Electronics subsidiary, which owns DirecTV.

If approved by federal regulators, Ergen’s purchase of DirecTV would give him control of 90% of the U.S. satellite-television market.

Analysts say the deal is a transforming moment for the 48-year-old Tennessean. A wily former accountant, Ergen has been tangling with--and frequently beating--television heavies for years. But swiping DirecTV from Murdoch’s grasp would be the biggest score of his life.

“He is now what Ted Turner was 20 years ago,” said Jimmy Schaeffler, an analyst at the Carmel Group.

He wasn’t always. Ergen began by selling giant backyard satellite dishes from the back of a truck in Colorado. From there, he began building what would become the nation’s second-largest satellite company with junk bonds and a zealous belief in frugality.

Ergen routinely demands that EchoStar executives share hotel rooms and take red-eye flights when traveling on business. One prominent TV executive said he recently chided Ergen when he spotted him riding in first class.

Facing increasing competition from DirecTV, EchoStar began undercutting the GM subsidiary in 1995 by slashing the price of a dish and set-top receiving box to $199 from $499.

Ergen once offered every resident of Boulder, Colo., a free dish after the city denied a franchise sought by a rival.

Although not as well known as cable billionaires Turner or Liberty Media Corp.’s John Malone, Ergen is the richest of the three with a net worth of $7.1 billion, according to Forbes magazine .

Still, insiders whispered that Ergen would never be able to pull together the financing required to compete for Hughes Electronics when he emerged as a suitor in August. By then, GM executives had all but handed Murdoch the keys to Hughes.

But Ergen mounted a ferocious campaign to persuade GM of the synergies between the two companies and began assuaging antitrust concerns by hiring lawyer David Boies, who represented the U.S. government in its antitrust case against Microsoft Corp. And when Ergen was able to secure only half the $5.5 billion in cash needed to satisfy GM’s demands, he guaranteed the other half by pledging his own EchoStar stock as collateral.

Ergen is expected to have far more difficulty, however, persuading antitrust regulators of the potential benefits of the deal. Fusing DirecTV to EchoStar would create a monopoly in the satellite-television business. Complicating the matter is Ergen’s history of appearing in Washington to lobby against consolidation, including DirecTV’s purchase of rival satellite provider PrimeStar.

But Ergen insists that regulators should measure his company’s power in the context of all of pay TV, cable and satellite. The deal would provide Ergen about 16.7million subscribers, a bit more than the No. 1 cable company, AT&T.;

Moreover, since early 2000, Ergen has dramatically ramped up his campaign contributions to both parties.

According to the data from the Center for Responsive Politics, Ergen and EchoStar have contributed more than $270,000 to Democrats and more than $300,000 to Republicans since the start of last year. He is believed to have a supporter in Sen. John McCain (R-Ariz.), the ranking Republican on the Senate Commerce Committee, which is active on telecommunications issues.

If News Corp. and other competitors lobby against approval, it won’t be Ergen’s first run-in with television’s titans. After a failed merger attempt with Murdoch in 1997, Ergen sued and won a crucial satellite slot in the resulting settlement, allowing EchoStar to provide additional programming.

“He’s been consistently underestimated,” said Stephen Keating, whose book “Cutthroat” chronicled the rise of Murdoch and Malone. “I don’t think the traditional media companies ... ever understood the economics the way Ergen did. He saw better than anyone that cutting costs to the consumer would drive market share. He’s kind of an ‘aw-shucks’ guy and he calls himself a country boy from Tennessee, but he’s playing at the highest levels of business.”

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