James Dolan allegedly duped investors, spied on employees and destroyed evidence of his shenanigans — all part of a scheme to pay the ballooning tab for an over-the-top construction project in the Las Vegas desert, according to explosive court papers.
The billionaire owner of the New York Knicks and Rangers – who has riled New York politicians over his use of facial recognition technology to ban legal rivals from his venues – has been accused in legal filings of spying on and firing workers who raised alarms over a controversial business deal he was pushing two years ago.
According to legal documents, Dolan employed the hardball tactics as he pursued his single-minded vision to build the MSG Sphere — a Las Vegas movies-and-music mecca whose grand opening this fall with legendary rock group U2 got teased in a splashy Super Bowl ad in February.
The construction tab for the high-tech, ball-shaped arena has more than doubled to $2.2 billion since the start of the pandemic. Last month, The Post reported exclusively that Dolan fired the latest executive in charge of the project, Lucas Watson.
Under the hotly contested business deal, the 67-year-old entertainment magnate allegedly swindled shareholders on both sides of an agreement to join Madison Square Garden’s cable-TV operations with its entertainment venues, plaintiffs allege.
According to securities filings, Dolan earlier this month cut an $85 million settlement over the explosive allegations with shareholders of MSG Entertainment, which in addition to Madison Square Garden owns a number of venues including Radio City Music Hall and the Rockettes.
In court papers, MSG Entertainment investors had accused Dolan of inflating the purchase price and diluting the value of their shares when the company in March 2021 paid $922 million for MSG Networks, the company that broadcasts Knicks and Rangers games.
In this month’s settlement, the Dolan family didn’t admit wrongdoing.
Dolan, however, is still facing off against investors in Delaware Chancery Court on the other side of the deal. Shareholders in MSG Networks — owner of the MSG and MSG+ cable channels — have accused the Dolans of destroying evidence of the Sphere’s rising tab in order to dilute a roughly 2-for-10 share swap in the merger, court papers show.
In other words, the Dolan family — which controls over 70% of the voting power of MSG Entertainment — stands accused of shortchanging investors on both sides of the same deal, partly by allegedly keeping the ballooning costs of the MSG Sphere a secret.
“Even if MSGE paid too high a purchase multiple for MSGN, the MSGN shareholders should have gotten a better share ratio in the merger, and would have, had they known that the Sphere’s costs were rising,” claimed the lawyer, who is closely watching the case but isn’t affiliated with either side.
The $85 million settlement with the MSGE shareholders will be paid out through an insurance company, but Dolan could personally be on the hook for as much as $200 million if he loses the MSGN suit, sources said.
The case winding through Delaware Chancery Court before Kathaleen McCormick – the tough judge who forced Elon Musk to follow through on his $44 billion Twitter takeover – alleges seven senior officers at MSGE and MSGN deleted texts and emails related to the merger.
Ditto for three directors from the Dolan family — including James Dolan’s estranged wife Kristin Dolan, his sister Marianne Dolan Weber and his son Charles Dolan, plaintiff’s attorney Joel Fleming alleged during a Jan. 17 hearing.
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“I’ve never seen a case with this degree of spoliation,” Fleming claimed at the hearing, referring to the legal term for destroying evidence relevant to a case, whether deliberately or accidentally.
According to a court transcript obtained by The Post, plaintiffs’ lawyers claimed that Dolan meanwhile admitted to spying on and then firing MSG Sphere executives who wanted to disclose the Las Vegas venue’s skyrocketing price tag.
In a letter dated Feb. 2, 2021, Jayne McGivern and Gokay Urenay told Dolan the estimated construction costs for the Sphere had risen 11% – from $1.66 billion to $1.842 billion. according to court documents.
Yet Dolan allegedly tuned out the major red flag. MSGE in its quarterly earnings filed Feb. 12, 2021, said Sphere costs would be $1.66 billion and that the “cost estimate is subject to uncertainty,” according to SEC documents.
“Mr. Dolan wanted no business with these projections,” plaintiffs’ attorney Scott Tucker argued in court records. “He refused to acknowledge them or discuss the estimates.”
When MSGE filed its next quarterly earnings on May 7, 2021 — after inking the merger agreement — MSGE finally admitted that costs related to the Sphere had “increased by approximately 10%,” according to SEC documents.
Meanwhile, an allegedly vindictive Dolan directed MSGE’s top security officer to snoop on McGivern and Urenay by digging into the executives’ emails and then covertly recording them “to manufacture reasons to fire them,” Tucker claimed, according to court documents.
McGivern and Urenay were forced out of the company after the merger around June 2021, according to sources.
McGivern could not be reached. Urenay was reached and declined to comment.
In a deposition, lawyers for Dolan defended his right to spy on the execs.
“Reading emails … is a normal thing for corporations to do, and it’s important to the security of a corporation. There’s nothing nefarious about it,” said Matthew Schwartz of Sullivan & Cromwell, according to the court transcript.
The trial on MSGN’s lawsuit is scheduled for April 18.
“Defendants continue to believe this case has no merit and that the transaction was in the best interests of shareholders and in full compliance with Delaware law,” an MSGE spokesperson told The Post. “The one-sided allegations plaintiffs are repeating here are not a substitute for actual evidence, and defendants look forward to proving that at trial.”
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