The Adelphia Scandal
By Georg Szalai
Thursday, July 18 2002
Thursday, July 18 2002
Published on AllBusiness.com
A voluntary bankruptcy filing and the specter of federal indictments of its principals has stimulated much debate in the cable community about what went wrong at Adelphia Communications and whether the company's woes should have been foreseen.
How could Adelphia rise from a small company that owned only a movie theater and a local cable system in 1952 to the nation's sixth-largest cable operator with close to 6 million subscribers, only to topple from grace within a scant three months?
While many in the cable industry have expressed anger about disclosures of financial self-dealings by Adelphia's founding family — the recently ousted Rigas clan — some industry figures and observers believe that the family might not have actively tried to hide abuses. Rather, they suggest, the Rigases — headed by 77-year-old patriarch and former company CEO John Rigas — were so isolated in their small hometown of Coudersport, Pa., and had grown so used to running Adelphia as a privately held family business that they didn't fully recognize — or perhaps want to recognize — the obligations of heading up a publicly traded firm.
In retrospect, these observers also say that Adelphia showed financial and strategic warning signs that were all but ignored while Wall Street was benefiting from the pre-Enron bull market.
"Adelphia never made the transition from privately held family company to publicly traded company," says Steve Effros, president of Effros Communications, a strategic communications and consulting firm focused on the cable sector.
"Even after their IPO (in August 1986), the family continued to run the operation like a private family business and continued to use it as a holding company for their own cash without paying much attention to the outside world," says Effros, a former head of a major cable trade group and influential rulemaker at the FCC, who has known the Rigases for more than 20 years.
Adelphia's financial woes began in late March when it disclosed $2.3 billion in off-balance sheet liabilities in the footnotes to a quarterly earnings report. The liabilities stemmed from cross-borrowing arrangements that Adelphia had struck with entities controlled by the Rigases.
In recent weeks, Adelphia disclosed various instances of commingling company and private Rigas funds. Among these dealings, the family used company money to bankroll a daughter's film project, build a private golf course on Rigas-owned property and finance the operations of the NHL's Buffalo Sabres.
While close company observers say they knew that Adelphia had co-borrowing arrangements with Rigas-controlled off-balance sheet entities, they insist they didn't know the full extent of those provisions.
"I
How could Adelphia rise from a small company that owned only a movie theater and a local cable system in 1952 to the nation's sixth-largest cable operator with close to 6 million subscribers, only to topple from grace within a scant three months?
While many in the cable industry have expressed anger about disclosures of financial self-dealings by Adelphia's founding family — the recently ousted Rigas clan — some industry figures and observers believe that the family might not have actively tried to hide abuses. Rather, they suggest, the Rigases — headed by 77-year-old patriarch and former company CEO John Rigas — were so isolated in their small hometown of Coudersport, Pa., and had grown so used to running Adelphia as a privately held family business that they didn't fully recognize — or perhaps want to recognize — the obligations of heading up a publicly traded firm.
In retrospect, these observers also say that Adelphia showed financial and strategic warning signs that were all but ignored while Wall Street was benefiting from the pre-Enron bull market.
"Adelphia never made the transition from privately held family company to publicly traded company," says Steve Effros, president of Effros Communications, a strategic communications and consulting firm focused on the cable sector.
"Even after their IPO (in August 1986), the family continued to run the operation like a private family business and continued to use it as a holding company for their own cash without paying much attention to the outside world," says Effros, a former head of a major cable trade group and influential rulemaker at the FCC, who has known the Rigases for more than 20 years.
Adelphia's financial woes began in late March when it disclosed $2.3 billion in off-balance sheet liabilities in the footnotes to a quarterly earnings report. The liabilities stemmed from cross-borrowing arrangements that Adelphia had struck with entities controlled by the Rigases.
In recent weeks, Adelphia disclosed various instances of commingling company and private Rigas funds. Among these dealings, the family used company money to bankroll a daughter's film project, build a private golf course on Rigas-owned property and finance the operations of the NHL's Buffalo Sabres.
While close company observers say they knew that Adelphia had co-borrowing arrangements with Rigas-controlled off-balance sheet entities, they insist they didn't know the full extent of those provisions.
"I
