Amid losses, newspapers take on debt

Did Copley pay off its debt after it sold papers to GateHouse?

It’s difficult to go digital when facing a debt default. Some of the nation’s largest newspapers are behind the times technologically, partly because they gobbled up additional newspapers instead of spending money on electronic advances. Now the digital media revolution has accelerated startlingly, and those papers, laden with leverage and facing an economy in recession, don’t have the money to get ahead of the curve. San Diegans have a front-row seat for this phenomenon.

According to Bloomberg News, U.S. newspapers’ print advertising sales plunged by 14 percent in this year’s first quarter from a year earlier, the biggest drop on record, largely because of weak real estate and employment markets and the loss of business to the Internet.

This is surprising, because 2008 is a so-called quadrennial year. Print advertising is supposed to get a nice jolt because of the presidential election and the Olympics. Metro newspapers are being hit the worst by far, but other media aren’t doing so hot: according to advertising economist Jon Swallen, advertising spending on network TV over the past 12 months is up a mere 0.8 percent. Ditto for magazines. Radio is down 4.5 percent and local radio down 7.2 percent. Keep in mind that the U.S. population is growing at about 1 percent a year.

The Internet is growing rapidly, but revenue of online operations run by newspapers rose only 7.2 percent over the past year, the smallest gain since the Newspaper Association of America began reporting papers’ online sales growth four years ago. Newspapers don’t make anywhere near as much money on online ads as they make on print ads. Online revenue is still less than 10 percent of newspapers’ total ad sales.

As a consequence of all this, newspapers’ earnings, if they exist, are strained. Stocks continue to plunge. In April of last year, San Diego’s privately held Copley Press sold nine newspapers in Ohio and Illinois to upstate New York–based, publicly held GateHouse Media for $382.5 million. Since then, GateHouse’s stock has plunged 85 percent. It’s now below $3. Astonishingly, the company has not dropped its dividend. The yield is almost a staggering 33 percent. I asked the company’s vice president of investor relations, Mark Maring, if he gets any questions about that yield. “Every day,” he joked.

Don’t expect that dividend to last. In its most recent quarter, GateHouse lost $27 million, double its loss of the same quarter a year earlier. GateHouse, which mainly has papers in small (often monopoly) markets, was not expected to be hit as hard as companies owning big metro dailies. But it piled up too much debt making too many acquisitions.

In a similar fix is Iowa-based Lee Enterprises, which was supposed to feast on its collection of smaller papers with little competition. (One exception is San Diego’s North County Times, a Lee paper with lots of competition.) But Lee piled up a lot of debt to buy a big paper, the St. Louis Post-Dispatch, along with too many smaller ones. In its most recent quarter, Lee lost $713 million. In the quarter a year earlier, it had made $11.2 million. A year ago, the stock was above $20; now it’s around $4. The dividend yield is above 17 percent. Obviously, that won’t remain. “Lee Enterprises’ financial health is poor,” says analyst Tom Corbett of Morningstar, a stock-rating firm. “Lee has assumed a substantial debt load from its earlier acquisitions, and the company is closing in on the upper limits of its debt covenants.” (That is a polite way of saying that it could default on its debt.)

But there may be really big default news in the offing. Bond-rating firm Standard & Poor’s says Chicago’s Tribune Company could face default by the end of the year. This company, which owns the Los Angeles Times, is burdened with excessive debt as a result of a kinky buyout engineered last year by real estate baron Sam Zell. The deal left the company saddled with $13 billion of debt. It must sell assets to survive. One of those assets is the Chicago Cubs baseball team, along with its historic stadium, Wrigley Field. The Cubs, who haven’t won a world championship for 100 years, finally have a good team and might face the indignity of being sold when they have the best team in a century. The Tribune wants the State of Illinois to buy Wrigley Field, but that deal appears likely to die. “We think [default is] a possibility as early as December,” Standard & Poor’s analyst Emile Courtney told Bloomberg News.

Philadelphia Media Holdings, owner of the Pulitzer Prize–collecting Philadelphia Inquirer, defaulted on $85 million of its debts in early June. This company took over the famed newspaper after the McClatchy Company bought Knight Ridder in 2006 and then dumped some of the papers. At the time it bought Knight Ridder, McClatchy stock was around $53. Now it’s below $7 and yielding 10 percent. The company’s bonds are rated junk (noninvestment grade), although not necessarily in danger of default. In March of last year, McClatchy sold the Minneapolis Star Tribune for $530 million — less than half of what it had paid for it seven years earlier. The private equity group that bought the Minneapolis paper, Avista Capital Partners, is now denying that it is on the brink of bankruptcy. Avista had borrowed $450 million to do the deal and has watched as the paper’s annual revenues have fallen by $75 million, says the trade publication Editor & Publisher.

According to Editor & Publisher, among other newspaper groups whose bonds are rated junk or a notch above are Freedom Communications of Orange County and MediaNews Group of Denver.

MediaNews, owned by William Dean Singleton, has been rumored to be a potential buyer of the Union-Tribune. In late 2006, Hearst Corporation bought the Torrance-based Daily Breeze, which covers the area from LAX to the L.A. Harbor, from Copley with the idea of transferring ownership to MediaNews, which is operating the paper. But MediaNews’s debt rating has been lowered several times, and default is a possibility, says Bloomberg. On June 18, the chief executive of closely held Hearst resigned. There are rumors that board members thought he spent too much money on newspapers (such as investing $288 million in MediaNews) and not enough on online ventures. Bottom line: MediaNews will have to strengthen its balance sheet greatly to buy Copley. Tribune and Lee, once considered candidates to buy the San Diego paper, are out of the running.

Copley once had a pristine balance sheet, because Helen Copley and her selected board members had an aversion to debt. The younger management was contemptuous of this prudence and finally persuaded her to take on debt to buy Ohio and Illinois papers beginning in the mid-1990s. It sold those papers to GateHouse last year, but the ailing chain did not assume Copley debt. Copley claimed it sold the papers because of tax obligations from the death of Helen Copley, although many insiders doubt that explanation. The question is whether Copley paid off its debt after it sold the papers to GateHouse. The company did not respond to a query.

In a speech on June 2, Singleton said that 19 of the 50 largest U.S. newspapers are losing money, and the number will grow. Some experts predict that a couple of dailies will fail within two years; some will cut out certain of their editions, such as Mondays and Tuesdays. The companies have to shell out money to service debt while revenues decline but must spend money to be competitive online. To slash expenses, there have been massive industrywide layoffs. Employees who had nothing to do with the dubious decision-making are left holding the bag, and their heads are inside that bag.

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More from SDReader


Response to post #13: Craigslist has walloped newspapers, including the U-T. Best, Don Bauder

Response to post #6:

RE your comment: "Some say that optimists believe that this is the best of all possible worlds. Pessimists fear that's so."

Yup, no one really cares anymore, and even you appear to have given up on any kind of an optimistic future for your readers.

Response to post #8: Nope. I haven't given up on optimistic futures. I do believe the United States is in for a long period of sub-par economic performance. But economics isn't everything. Best, Don Bauder

It’s no wonder, our Fourth Estate is now Newspapers, TV and Internet, and today all these “news” sources thrive on tabloid journalism so much that people don’t even bother thinking about how to make the right things happen to stop themselves from continuing to go over the cliff anymore.

With tabloid journalism demanded by the infamous Murdoch who is the world emperor of slime news, Zell of L.A. Times and Chicago Tribune and David Copley print news in America has crashed and burned to the point where it is now threatening American Democracy.

As a sidebar, this all ties in with the failure of our education systems throughout America (Ex: U-T “School’s out (of cash) Budget --- cuts force districts to cancel summer classes” this morning). Corrupt federal, state and local politicians, both republican and democrat are guilty of this threat to American Democracy and the American family.

Response to post #1: I read the Wall Street Journal every day and I don't see much change since Murdoch took over. The publication still chases private sector crooks; I feared he would soft-pedal that emphasis. The Journal still gives bad news as well as good news; that's critical. Murdoch said that the Fox TV business news channel would emphasize positive news, so I have never watched it, and never will. I want balanced news -- good and bad. I think some of the Internet websites are good. Best, Don Bauder

Don, did GateHouse pay all cash ($382 Million) for the Copley papers? Or was it a stock swap????

Response to post #2:

Actually, after the hideous 24/7 tabloid news coverage by Fox, MSNBC and CNN during the primaries this year I don't watch any of them anymore.

Yes, The Reader is one of the best of the best, but you are also one of the few to go after corruption and greed that is destroying the social, political and economic fabric of San Diego, but the saddest news is that it appears that NORC prevails. Almost all the news is for entertainment, not for thinking anymore, another testimony to the failure of our education system destroyed by the corrupt U-T political establishment.

So I translate your comment: "One reason for optimism is that the pessimists are wrong half the time, just as the optimists are" to mean there is nothing to be optimistic about anymore.

Response to post #3: The terms were never announced, but I have it on the q.t. that Copley got cash. Gatehouse was so leveraged that it didn't have the cash, but Fortress, the big hedge fund/private equity group forwarded the money. It controls a big chunk of Gatehouse. Best, Don Bauder

Response to post #4: Some say that optimists believe that this is the best of all possible worlds. Pessimists fear that's so. Best, Don Bauder


In this story and others, you've used the term "kinky" to describe various deals.

I'm familiar with the standard definitions:

(from dictionary.com)

  1. full of kinks; closely twisted: a kinky wire.
  2. (of hair) closely or tightly curled.
  3. Slang. marked by unconventional sexual preferences or behavior, as fetishism, sadomasochism, or the like.

Are, for example, the ballpork bands partiucularly kinky, since they put our youngsters in debt-bondage? Did John Moores (only hypothetically speaking here) dress up in leather and latex to convince the City Council to give him our money? Was Jack McGrory there in his facial-mask, prince albert piercings, and cuffs, led around in chains by Susan Golding smirking in an ill-fitting dominatrix costume?

Is that kinky business?

Perhaps it's just dull, full-bellied balding men in business suits conspiring over filet mignon at Mortons while robbing us blind.

Don, are you the author of this term in the business reporting world? Do you think we can propogate it and see it appear in a national financial broadcast before the election? It's so versatile when it comes to describing our national business climate.

Do you tell your friends at parties that you write about the ongoings at kinky businesses?

Inquiring minds want to know.



Response to post #7: I'm not used to having my words parsed so thoroughly. When I use "kinky" for a business deal, I am usually referring to a basic business fraud: a deal, concealed in contrived complexity, marked by massive debt, in which somebody is screwing the others, and perhaps also the public (pro sports stadiiums). Zell's Tribune deal is clearly kinky. Best, Don Bauder

When I use "kinky" for a business deal, I am usually referring to a basic business fraud: a deal, concealed in contrived complexity, marked by massive debt, in which somebody is screwing the others, and perhaps also the public (pro sports stadiiums).

Believe it or not, this "kinky" business fraud is what started the financial downfall of the US in the late 70's and thru the 80's with "junk bonds" and their money backers-deregulated savings and loans.

The premise of junk bonds was simple-credit worthy companies with bad credit but good assets and balance sheet, but the real world application of buying ANY company with assets and a strong balance sheet through LEVEAGE (100% borrowed money) of taxpayer backed savings and loan "bonds".

We can thank that idiot Michael Milken for a large portion of the downfall of America-and to think that guy only did 2 years of a 10 year sentence.........Thank federal judge Kimba Woods for that sham.

When you look at it, the hedge funds and private equity firms of today are doing today pretty much the exact same thing Milken was doing 25 years ago........

Response to post #11: Milken started with a big lie: he proclaimed that a portfolio of junk bonds does as well over time as a portfolio of investment grade bonds. That has never been true. But greed overcame reason. Today, governments, corporations, and individuals are living a similar lie on debt: the assumption is that leverage is good -- the more the merrier. Another such fraudulent misconception is the idea that deliberately complex derivatives -- again, contrived complexity -- do not have to be regulated. Admittedly, regulation would be incompetent, but it would be better than today's laissez faire, which could destroy us. Best, Don Bauder

The freefall that the San Diego Union Tribune has been in lately is very evident. This last Sunday's classified section for jobs was less than 3 pages. The news stories are gussied up reprints of local press releases or just copies off the AP or Reuters service. There are no more good investigative stories.

It's as if the paper is just dying before our eyes. Then they raise the news rack price to 75 cents? I guess they really want to stick it to people having breakfast alone, because that's the only people picking up the paper. It's not for job hunters... there's no jobs in the paper anymore (at least that paper).

Today the big metro story is about a candy store in Boulevard that "might close." Glad I'm being kept abreast of the market.

The daily papers should refocus with online content and advertising.....it is the future, and at this point in time everyone knows it.

Response to post #12: There are many reasons for the U-T's collapse. The main ones are affecting other metro dailies: demographics (the young don't read) and technology (too late with too little news). The U-T has made other localized errors, such as not keeping up with changing demographics in San Diego, failing to improve the online edition, permitting hate-sated editorial writers and reporters to smear Mike Aguirre endlessly, permitting reporters to slant the news constantly on anything Donna Frye says, on the stadium giveaways, etc. Constant cozying up to the real estate development industry and its puppets in local government hurts credibility. Burl Stiff's laudatory columns on David Copley's profligate ways hardly help when the paper is raising its price and lowering its quality, paring its payroll, and fighting former employees' attempts to get unemployment compensation. I am afraid that only new management will save that company, but I am also afraid that there are few potential buyers out there. Best, Don Bauder

Hey lets buy that paper and call the new one "Page 17". Because that is where most newspapers put the news if at all. Only this one will put the entertainment on page 17. Any takers? lol

Response to post #17: I don't know what the U-T would cost. Valuations of papers have been dropping very sharply for several years. Remember when David Copley was considered a billionaire and was in the Forbes 400? That was several years ago. I remember writing a column that his ranking would disappear. It did -- the next year. Would the U-T cost $200 million? $500 million? There are many variables. There is excellent real estate in La Jolla. The Mission Valley building wouldn't be worth quite so much if the buyer chose not to use the presses (say, would have the paper printed elsewhere). Profits are down very, very sharply now but this company made a lot of money in years past. If that money hasn't been dissipated, there should be good reserves. The company has dumped its losers such as Casa del Zorro and the Illinois/Ohio papers, which were losing money modestly when they were sold last year. Best, Don Bauder

Speaking of the Olympics, remember four years ago when newsdoll Karin Winner decided to blow a buncha bucks to send reporters to Australia? Everyone in the UT (except la Winner and the lucky few travelers) were shaking their heads. It was well understood the organization that this was a unvarnished junket and would do zero to boost the paper's circulation and prestige. Speaking of a lack of prestige, around the same time, head page designer Robert York subbed for Winner at one of the quarterly management round-ups. When asked why the UT did not get a Pulitzer nod for its coverage of the local fires York screeched (yes, screeched) "Because the Pulitzer judges got it WRONG!" I think the clown honestly thought the room would erupt in wild cheers, hilarity and foot stomping. Instead the group responded with a sad and unsurprised silence.

Response to post #19: If the Olympics profligacy was four years ago, I was gone by then. I do remember, however, that the U-T published rush-rush Olympics street editions at least once during my 30-year tenure there. I have been told on good authority that they wound up in the garbage. There wasn't much of a market. The Olympics are suitable for electronic media, but not ink and paper. The Olympics deserve coverage in a newspaper, of course, but shouldn't be an economic drain. As to the quarterly meetings, I used to go to the first half hour and get some of the statistics. Then I would get out of there. I was too busy to spend half a day on those silly gatherings. Best, Don Bauder

It's a sad state of affairs for journalism in America. While we are fortunate to have some electronic choices that provide thorough, balanced reporting, they cannot replace the value of newspapers in this country. I am young and I still need the tactile connection and cannot imagine the loss of full-scale, in-depth articles.

As for the Union-Tribune, aside from the changes in news appetites, changing demographics and recession-plagued advertisers, the editorial bent of the paper might be toward the top of the list of maladies.

Losing the LA Times San Diego edition, a good competitor to the Union-Tribune (possibly keeping it more honest, or rather balanced), may well have contributed to what appears to be the Union-Tribune's slow, agonizing death. Without a competitor, the newspaper became drunk with abusive power and has lost so much credibility that I decided to cancel my long-term subscripition for a better option...the LA Times, which now has a better mix of Southland news and far better California, national and world coverage.

There are many fine reporters still at the Union-Tribune, but the editorial culture is a cancer that has not only affected the editorial pages, but the news department, which by standards of sound journalism, should be separate.

The eighth largest City in America without a major daily? I hope to never see that day. Let's hope for a strong buyer to come in and make some sweeping changes (starting with Bob Kittle) and deliver a paper worth reading again. Sign me up when that day comes!

Response to post #21: The Union-Tribune's biased editorial/reportorial slant and its economic woes are closely related. The employees are afraid of more job cuts, which are certainly coming. Even though a reporter may be good, and an editor may be good, they want to keep their jobs. And the way to do that is to twist the news to conform to management's and ownership's predilections. Don't ask the tough questions of someone beloved of management (generally, the establishment). Present any negative news with a sugar pill. With someone hated by management, do the reverse: twist everything to the negative. That's how to keep your job. This is why it is so often hard to distinguish the so-called news pages from the editorial pages. Best, Don Bauder

Losing the LA Times San Diego edition, a good competitor to the Union-Tribune (possibly keeping it more honest, or rather balanced), may well have contributed to what appears to be the Union-Tribune's slow, agonizing death.

I agree totally, losing the LA Times San Diego office was devestating (especially to me because I am such a big fan of the Times), and the poster is 100% correct, without competition the Union/Tribune did not have the focus it should have, and that lack of focus contributed to the downward spiral.

The internet is of course the biggest factor.

Response to post #23: Actually, when the Union and the Evening Tribune merged in the early 1990s, a competitive spirit went away, worsening the new product, the Union-Tribune. Competition from the LA Times was also a positive for the community and for the SD-based papers. Best, Don Bauder

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