Trouble in the House of Redstone

Illustration by Sean McCAbe

A shopping mall in Dedham is a curious place to witness the waning days of an empire. Then again, life has always been curious when the Redstone family is involved.

From here in Dedham, Sumner Redstone transformed his family’s modest theater business, National Amusements, into a mighty kingdom that now extends into almost every corner of the media and entertainment industries. Through National Amusements, Sumner orchestrated the takeovers of Viacom in 1987 and CBS in 2000, as well as their related fiefdoms (MTV, Nickelodeon, Simon & Schuster, et al.). It was a power grab with few parallels in the history of American business. Today the Redstone holdings encompass more than $8 billion in assets, making Sumner one of the wealthiest men in the world. He is now 86, and his legend is secure. What he leaves behind is not.

Which brings us to the new Legacy Place shopping mall, where Sumner’s old offices have given way to a Banana Republic and a P. F. Chang’s, and where there now hulks a 15-screen Showcase Cinema De Lux, the mall’s centerpiece. The massive theater represents National Amusements’ attempt to establish itself as a luxury brand.

On this cloudless August day, several hundred VIP guests—a mix of tweedy country-clubbers and what passes for Boston’s young and hip—have gathered to christen the building. Teen beauty queens greet the arrivals, who sip cookie-dough martinis in a swank lounge as waiters circulate with duck canapés. (Tomorrow, the theater will be serving salmon pinwheels and $10 burgers, delivered to patrons who order via the touch of a button as they watch movies from Ultraleather loveseats.) There are ice luges and free bags of popcorn. A pianist on a baby grand plays hoary show tunes. All that’s missing is the ghost of Wallace Hartley on fiddle.

At the center of the hubbub is a small woman in lilac and pearls, a tiny, fine-boned creature with a familiar ginger dapple to her hair. She is Shari Redstone, Sumner’s daughter, president of National Amusements, caretaker of the family business through which Sumner’s corporate interests are controlled.

After a series of musty aldermen take the stage to pay tribute to various regulatory bodies and other musty aldermen, it’s Shari’s turn to address the crowd. She steps up to the podium. Even though her black pumps add a few inches, she still has to lower the microphone. She hardly needs one: Her voice, lacquered with a thick Boston accent, is conditioned to shouting.

“My grandfather was a visionary,” she begins. “What I learned [from him] was the value of relationships.”

The crowd quiets. Shari describes how her beloved grandfather, Mickey, laid the foundation for the Redstone fortune. She has spent most of the day talking up a bright future for National Amusements; behind the smile, however, is wistfulness. “This has been a dream come true,” she says. “We have indeed come a long way…. [The business] has continued to be founded on the principles and values that were so important to [my grandfather]. I know that he’s up there smiling, and his legacy will live on forever.”

When the speech is over, the audience claps and files into theaters to watch free screenings. By the time the credits roll, the lobby will be empty, the ice luges melted, only popcorn left to sweep up. On their way home, few people will remember that in her speech about legacy, Shari Redstone neglected to mention the father who had given her everything, and who may yet take much of it away.

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.

Emotional rot runs deep in the Redstone family. Sumner’s parents, Mickey and Belle, were the children of Jewish immigrants, and they grew up hard. A “crazy tyrant” is how Sumner’s younger brother, Edward, once described their mother. “It was a dysfunctional family. It really was. And still is,” Edward said while being deposed in a recent court fight. He called his father “mean and tough.”

Mickey got his start as a street-smart linoleum peddler and associate of Harry “Doc” Sagansky, an underworld figure known as Boston’s biggest bookie. (Mickey, who had changed the family name from Rothstein to sidestep the anti-Semitism of blueblood Boston, also palled around with former Mayor John “Honey Fitz” Fitzgerald.) Legend holds that Sagansky helped Mickey get into the movie theater business in the 1930s; the Redstone kids grew up selling popcorn at the concession stands.

Sumner was always the favorite son, a prodigy who graduated with what he claims is the highest GPA in the 374-year history of the Boston Latin School. By his early thirties, he’d picked up multiple degrees from Harvard, worked as a code-breaker during World War II, and as a young lawyer successfully argued a case before the Supreme Court. But Sumner left his private law practice in 1954 to take a job at Mickey’s theater chain, then called Northeast Theatre Corporation.

Edward, who had already been working for their father, was relegated to second-tier status. “I had the more glamorous part of the company, and I think he was hurt by that,” Sumner recalled in a deposition this year. In 1971, Edward sued Sumner and Mickey, arguing he’d been pushed out of the company—a move that earned him a terse letter from his mother. “You have brought disgrace on you, your family, and all of us,” Belle wrote, before closing on a note that says a lot about the prosaic nature of familial treachery in the Redstone clan: “The weather has been magnificent.”

After the two sides settled, Sumner’s stake in the company grew. He seemed content to gradually expand the theater circuit, which by the 1970s had swelled from a dozen drive-ins to scores of indoor theaters. But in 1979, a brush with death at the Copley Plaza Hotel changed everything. At the time, Sumner reputedly was visiting his mistress in the hotel when a terrible fire broke out. He clung to a third-floor windowsill with one hand as the blaze burned him horribly. Doctors didn’t expect him to live through the 60 hours of surgery he required, much less walk again. He did both, as well as endured months of painful skin grafts. The experience forged something in him. He returned to work a different man, with a new focus. He wanted to build something bigger. And to do that, he needed control of National Amusements.

By 1984, Sumner had bought out the shares owned by Edward’s two children. The trouble that befell Sumner’s niece and nephew constitutes their own tragic tangent in the family saga: Edward’s daughter, Ruth Ann, disappeared in 1972, after reportedly joining a cult called the Children of God, and turned up dead in 1987 in Japan. Ruth Ann’s brother, Michael, was hospitalized for mental illness. He later went to work for Sumner, and eventually sold his shares to his uncle in a deal that would divide the two when Michael contested it in court decades later.

With control of National Amusements in hand, Sumner set out to conquer as much of the world as he could. In 1987, he was 64 and just getting started. With $780 million in cash from National and more than $2 billion in loans, he prevailed in a hostile takeover of Viacom. In 1994, he scooped up Paramount for $10 billion and Blockbuster for nearly $8 billion. In 2000, he landed CBS for $40 billion. At an age when most people have long since retired, Sumner made himself into one of America’s great entrepreneurs, throwing elbows all the way.

Of course, the familial dysfunction didn’t diminish. In 1999, Phyllis, Sumner’s wife of more than 50 years, filed for divorce after her private detective photographed him canoodling with another woman, this time in Paris. The split with Phyllis would force Sumner to part with hundreds of millions of dollars and to relinquish some of his prized control over his National shares. Dissolving the ties with his children, though, would come at a different price.

To meet Shari once is to be swayed by her energy. To watch her over time is to see something different: She never lets her guard down. For years, investors, analysts, and observers have wondered if she could be the next star in the Redstone family. They take her measure. All they can do is speculate.

Shari grew up in Newton and went to Newton South High, about a mile from the family home on Baldpate Hill Road. She worked as a summer intern at Paramount. She graduated from Tufts and then law school at Boston University, and toiled quietly as a criminal-defense lawyer and corporate attorney. After marrying Ira Korff, a rabbi, in 1980, she quit to raise children. Korff himself was brought into the family business, serving as president of National Amusements from 1987 until 1994, when he and Shari divorced.

At the time, Shari was studying for a degree in social work, but warmed to her father’s suggestion that she work part time for him. “The culture of the company was that each generation would participate,” Sumner explained in a recent deposition. By 2000, Shari had become president of National, installed atop the business the same way Mickey had elevated Sumner four decades earlier.

Shari does share certain traits with her father. There is a ruthlessness beneath the pearls, and her ascension to power has created its own casualties in the family. Chief among them is her brother, Brent, who felt frozen out of the business. People who know the 59-year-old Brent, a former Boston prosecutor and a train enthusiast, say he is sweet and laid-back, similar to his mother in temperament. “A nice-enough fellow who was just ruined from an early age,” says someone who has done business with the Redstones. “He’s not the kind of guy who his father respects. He’s a sad soul.”

In 2006, Brent sued National Amusements and ended up taking a $240 million buyout to be done with the company. He now lives on a 625-acre ranch in the mountains west of Denver. “It’s a repeat of what happened with Sumner and his brother and his father,” a family adviser says. “It’s historic. This has been playing itself out for the last 50, 60 years.”

By the time Shari took over the theater circuit, National had gone global, most notably in the United Kingdom. Shari continued to expand overseas, pushing deeper into Brazil, Argentina, and Russia. “She correctly sees [Russia] as a huge market that’s almost untapped in terms of a modern cinema,” says John Fithian, president of the National Association of Theatre Owners.

Shari also paved the way for the emergence of the upscale cinema market. In 2001, she helped develop the Bridge in Los Angeles, one of the first luxury theaters in California and a model for the Cinema De Lux line, with its hip lounges and full-service bars. The Bridge “forced people to take me seriously,” Shari said at the time. It worked. “She’s fearless with respect to trying new ideas,” says Frank Rash, a senior vice president at AMC who worked with Shari and other exhibitors to create the retail website Movietickets.com. “She’s been a pioneer…. [T]he advancement of food and beverage services and premium auditoriums—National Amusements has been at that for a while, and those things have been adopted throughout the industry.”

Sumner always favored his flinty, feisty daughter (“Sumner in a skirt,” as a former Viacom executive once described her), but Shari has none of her father’s outrageous charisma, none of the big personality that pulls the oxygen from a room. She’s an introvert. “I live with myself,” she has said.

Shari does, in fact, live alone in Westwood. Her three children are grown. She has no significant other, no connection to her only sibling, and a toxic relationship with her father. She is an inscrutable presence who may well love the glamour of her position but has chosen to fly under the radar. She’s revealed few personal details over the years. (Unsurprisingly, she refused to be interviewed for this story.)

Just about the only thing Shari will cop to enjoying is cooking. She has said that she used to feel guilty if she didn’t cook for her children every night; in 2004, at a luncheon of women executives, she discussed the joys of being a “stay-at-home mother who baked cookies.” Earlier this year, Shari managed to somehow sneak in a mention of baking pies—during a bankruptcy lawsuit. “She does bake a mean chocolate chip cookie,” admits one person who spoke on condition of anonymity.

Beyond that, there’s little to go on. Harmless questions forwarded to one of her many handlers—What’s Shari’s favorite movie?—elicit a fear response. Other banal queries are similarly off-limits. What’s Shari’s daily routine like? What kind of hours does she work? “I have never seen her give out those kinds of details, even for some of the many profiles that have been done in the past, at a very different time,” says Nancy Sterling, Shari’s primary spokeswoman, in an e-mail.

According to people in the know, Shari has ensconced herself in her Westwood home and her New York apartment and rarely visits the office. They figure it’s too painful, too embarrassing. The blood is ankle-deep on the floor, thanks to some missteps in management for which she’s been blamed. Take National’s formerly bloated payrolls, for example: Where other theaters might have one manager, National often paid three or four, says a family adviser. “Now they’re firing people left and right,” he says. Some of them had worked for National since Mickey’s day, and many blame Shari for the crisis. And there’s another reason, one family friend believes, for Shari’s absence as the business implodes: She’s pouting. “It’s all drama,” says the friend. “Waiting for Sumner to say, ‘Why don’t you go in?’ It’s ridiculous.”

Indeed, it’s tough to find anyone to vouch for Shari who doesn’t have skin in the game. People she’s identified as her pals in the past—former Paramount head Sherry Lansing, for instance—refuse to return calls. And others have already learned it’s better to keep mum than face the Redstone wrath. “Over the years I have found that there is no percentage in this for me, on or off the record,” says former Viacom CEO Frank Biondi, echoing the sentiments of many associates contacted for this article.

It’s easier, unfortunately, to find those who offer up negative comments about Shari. “A spoiled brat.” “Too concerned about her image.” And, the most damning slight for a working woman: “She’s no Hillary.” Fair or not—and there are a great many people with blades ready when it comes to the Redstones—the picture that emerges is of a smart, strong-willed woman who can be compassionate but also inflexible. An ambitious executive who thirsts for power but doesn’t realize what power requires. An excellent generalist dedicated to the theater business who refuses a salary in dire times, but a poor specialist who lacks the finesse and the chops to be a mogul like her father.