By Devin Leonard

(FORTUNE Magazine) – IS CABLEVISION CEO JAMES DOLAN ready to compete with Donald Trump? That's what he'd like everybody to believe. On Feb. 4, Madison Square Garden, which Cablevision controls, offered to buy the site of the proposed stadium for the New York Jets on Manhattan's West Side for $600 million and turn it into a "dynamic mixed-use community."

It remains to be seen if Dolan is serious about competing to develop the site or if he just wants to make it harder for the Jets to build a stadium that might compete with the Garden. But if Dolan wants to prove he can spot a good real estate deal--not to mention serve his shareholders--perhaps he should withdraw his $600 million bid and pursue another transaction altogether. Turns out that two prominent New York developers--Related Cos. and Vornado Realty Trust--quietly approached the Garden about building it a new arena as part of their bid to redevelop the Farley Post Office Building one block away. In exchange, Related and Vornado want the right to construct an office complex where the Garden currently stands.

You would think Cablevision would be thrilled about the prospect of a new arena. After all, the company concedes that the aging Garden needs a $300 million renovation. However, Cablevision says it has no plans to move the Garden, home of the New York Knicks basketball team and the New York Rangers hockey club. (The Knicks and the Rangers are also owned by Madison Square Garden.)

Cablevision declines to discuss the Vornado/Related plan. But from the cable company's standpoint, it has one major drawback: It would require the approval of the government body overseeing the post office project, the Moynihan Station Development Corp., which is controlled by New York City Mayor Michael Bloomberg and New York Governor George Pataki. They are unlikely to sign off on such a favorable deal for the Garden unless Cablevision drops its opposition to the new West Side stadium (and presumably withdraws its offer to snatch the stadium site out from under the Jets, which prompted the site's current owner, the Metropolitan Transportation Authority, to open up the sale process on Feb. 15 to other bidders). Bids for the post office refurbishment were due on Feb. 18. Charles Gargano, the corporation's chairman, doesn't expect Related and Vornado to include a new Madison Square Garden in their proposal.

Yet if the Garden gets the stadium site, it will still need the city's help, because the property is zoned for manufacturing. The Garden may have a shot at rezoning it if Bloomberg isn't reelected in November. But if the mayor wins a second term, well, it may be a while before Dolan's company has any apartments to sell. While FORTUNE isn't condoning backroom deals in smoky chambers, the city's major developers know what can happen if they alienate the mayor. That's why they are all publicly staunch supporters of the Jets stadium. If Dolan wants to play in their arena, he'd better learn that fast. -- Devin Leonard