Manchester paid more than $110 million for San Diego Union-Tribune</em

Did he get it cheap?

Speculation is that local developer Doug Manchester just wants the U-T’s prime Mission Valley real estate.
  • Speculation is that local developer Doug Manchester just wants the U-T’s prime Mission Valley real estate.
  • Image by Chris Woo

The market for metropolitan daily newspapers is stone cold. Experts are convinced that daily newspapers, even those with a promising online presence, are becoming obsolete. That suggests that the Union-Tribune, which was sold to hotelier Doug Manchester on November 17, went cheap again.

Five or six years ago, the U-T was worth a billion dollars. Platinum Equity of Beverly Hills bought the paper in 2009 for between $35 million and $52 million, according to reliable estimates. Manchester claims he paid more than $110 million, which would still probably be below the value of the real estate. Papa Doug’s partner John Lynch publicly stated he wants editorial fluff. That could wallop circulation. It’s possible the U-T will become the first major metro paper to drop the print edition and go strictly online — departing its Mission Valley headquarters in the process so Manchester can tear it down. Again, that’s speculation.

Deep doubts about the future of metropolitan daily newspapers pervade the financial community, and they are reflected in stock prices of publicly owned newspaper chains. Prices plunged in 2008 and 2009, and then they snapped back as the overall market rallied. But now they are nearing those recessionary lows.

The numbers tell the story. According to the Newspaper Association of America, industry ad revenue has dropped every quarter since the third period of 2006. Newspaper revenues have plunged about 50 percent since then. Adjusted for inflation, newspaper advertising is at about the same level as 50 years ago. Ad revenue per capita is down 63 percent from its all-time high in 1988. Revenue from classified advertising, which was once a major profit center, last year was one-fourth what it was in the year 2000, according to Pew Research Center.

“People are abandoning newspapers, and for that reason you should sell all your newspaper stocks,” says a columnist for TheStreet.

“More readers choose to get news free online, thereby making the print-advertising model increasingly irrelevant,” says Zacks.

Stock prices reflect such views. In 2004, you could have paid $40.01 a share for Lee Enterprises, which owns 49 dailies (including the North County Times) and 300 weeklies. By March of 2009, that price was down to 28 cents. Then it rose to $4.24 last year; as of last Friday, it was back down to 63 cents. Gannett, the largest newspaper chain, fetched $91.38 in 2004. It got as low as $1.85 in early 2009, bounced back to $19.69 last year, and Friday was down to $10.99. McClatchy, which owns several dailies, including the Miami Herald, sold for as high as $63 in March of 2005, dropped to 9 cents in early 2009, bounced back to $5.35 last year but on Friday was down to $1.15. The New York Times, which owns the Boston Globe and 16 other dailies, sold for $53 in 2003, sank to $3.44 in 2009, rebounded to $14.87 last year, and Friday was back to $7.19.

Advertising on newspapers’ internet sites is now about 14 percent of total revenue. It had been growing robustly but was walloped by the Great Recession. According to Pew, newspapers’ online revenue was $3.17 billion in 2007, plunged in 2008, and only made it back to $3.04 billion in 2010. There is a general agreement that online represents the future, but internet profits are anemic. The papers would like to charge for their online service, but people can get so much online news for free. Many papers fear an online charge will backfire. The New York Times and Wall Street Journal are among those that have clamped on fees.

On November 14, the New York Times ran a story about John Paton, the chief executive of Denver’s MediaNews Group, the second-largest newspaper chain by circulation. He’s known as “the digital apostle.” Newspapers must go online quickly and “stop listening to newspaper people,” preaches Paton. He is convinced that “if newspapers are to survive, they will all but have to set themselves on fire, eventually forsaking print and becoming digital news operations,” the Times said.

Newspapers in their most recent quarters have suffered. Total ad revenue at the New York Times dropped 7 percent, with print down 10 percent. McClatchy’s revenue was down 10 percent. Print ad revenue at the Washington Post was down 20 percent, as the company lowered prices. By contrast, ad revenue at Google soared 33 percent. No wonder Wall Street analysts think the metro daily print-advertising model is outmoded.

Newspapers are improving profits by slicing employment, pay, and contributions to employees’ 401(k) plans, while closing printing facilities. Joscelyn MacKay of Morningstar Research fears that the New York Times “will run out of fat to trim and have to cut into muscle, hurting the quality of its product.” And she doubts that online revenue will ever become a meaningful part of overall sales. MacKay expects Gannett’s revenue to continue sliding as print declines offset any online gains.

Joseph Agnese of Standard & Poor’s says McClatchy’s sales will drop 6 percent next year following this year’s declines, as circulation also slips.

The Union-Tribune has some advantages. In combined print and online, the paper has a 52 percent penetration of the local market, according to Pew. That puts it in the top 20 of American papers. But it’s well below the 72 percent of the Rochester Democrat & Chronicle, the leader. It’s frigid and snowy in Rochester. People have more time to read newspapers.

That’s more evidence that it will be a cold day in hell when the Union-Tribune sells for a fat price, and it certainly didn’t on November 17.

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In the 50s and 60s Television started to bury Movie Theaters. In the 90s it was computers and the Internet which started to bury newspapers. Too bad! Progress marches on!

Alas, metro daily newspapers have at most a generation to go, barring some unusual happenstance, such as a severe electricity shortage. Even then, newspapers would be in a bind, because it takes a lot of electricity to put out a paper. It's the old saying: A newspaper plopping on your doorstep at 8 a.m. to give you news you viewed online at 10 p.m. the previous evening is a case of too late with too little. Best, Don Bauder

It is likely that Manchester is borrowing against the value of his contract to develop the Navy Complex in order to maintain his personal lifestyle and to pay for the Union-Tribune. The development rights could be worth as much as $1 billion. If Manchester runs into cash flow problems, he can start selling percentage interests in the Navy complex project to pension funds and the like in order to keep himself afloat.

I certainly would like to know Manchester's finances. The claims by both sides in the divorce case are hilarious. I have been asked whether Manchester deliberately permitted Lynch to make a fool of himself in that Voice interview so the paper would sink more quickly and Manchester could shut it down and start developing the real estate earlier than planned. I don't think so. I doubt either Manchester or Lynch has read The Prince or even heard of Machiavelli. Best, Don Bauder

Nor have they likely read "The Art of War" by Sun Tzu, popular with business tycoons.

I have not read it. But I am not a tycoon. Best, don bauder

There is still the big question of how much that Mission Valley spot is worth now, and in the near future. As his age, looking twenty or thirty years ahead doesn't make much sense. So, if there is a long dry spell in developing such areas as Mission Valley, why did he cough up over $100 million? Or is a piece of MV worth a bundle right now?

From a strictly financial point of view, a newspaper that produces no net profit is worth exactly nothing. Now, there are speculators who might say they can turn around a paper, or that this downturn is temporary, or whatever. And those folks might find it possible to justify paying something for the enterprise. But is Manchester one of those speculators? Methinks not. He is buying it because of real estate, which is his specialty. Will we ever learn the real story?

The Mission Valley property is going to be worth boo-koo bucks, but not for a long long time. I predicted this real estate downturn to last 3-5 years when it started in 2007, now I predict it will not end for 7-10 years, which would be 2015-2017.

In 2017 that property will be worth bundles........but who has the $$$ to cover the holding costs for another 5 years????

I, too, believe that a weak economy -- internationally, nationally and locally -- will be around for some time. I don't see commercial real estate recovering stoutly. Best, Don Bauder

Voice of San Diego had an unattributed estimate that the U-T is earning $25 million. I don't believe that for a minute. The estimate may have come covertly from Platinum or Manchester. least, I can't believe $25 million under acceptable accounting procedures, particularly since print circulation and advertising appear to be falling. Best, Don Bauder

It was reported in the media that under Platinum Equity management the U-T is currently earning about $25 million per year, before interest and taxes.


If that is true they are business brainiacs. I find it hard to believe they made that much, but if they did I salute them!

I suggest you not believe that number, although I don't criticize the Voice for printing it. Private equity groups buy assets to sell them. Between the purchase and the sale, there is often accounting hanky-panky. Best, Don Bauder

Yes, that was in Voice of San Diego. Too bad we can't look at the accounting. Best, Don Bauder

I admit the numbers don't make any sense, but the Voice of San Diego quoted sources who say the U-T is currently earning between $25 and $30 million per year.

If those "earnings" are what the accounting profession would call "net earnings before taxes", that is a whopping figure. All it takes to really wonder about such claims is to look at the current daily and Sunday product. Most advertisers have abandoned the paper, and use it only as a distribution medium for their preprinted supplements. Circulation keeps dropping, so ad rates fall. With readership down, consumer response to ads falls, and advertisers abandon the paper. A classic downward spiral.

One can only wonder if someone looked at one particularly good month and extrapolated it to an annual figure. (That's a common ploy.) Or if that is based on some "profit" number that failed to account for depreciation and imputed rent on the building. In other words, a cash accounting methodology. More likely, it is just a lie, or the result of a non-financial pollyanna looking at books and finding something good there, when in truth nothing looks good.

All your suppositions are sound ones, Visduh. Best, Don Bauder

The "sources" probably had a selfish motive for giving that number. Those who buy from private equity groups should be sophisticated enough to hire accountants to comb through the books carefully. Best, Don Bauder

Nobody said he paid $110 MILLION CASH. People with that kind of money structure things. They put in conditions. They put in contingencies. Nobody knows. Sometimes not even the people who do the deals in the first place (not the case here, I need to add).

You are absolutely right. A guy like Manchester didn't have that much cash, so he probably put together a package of some cash, some other real estate, and notes that won't all come due for up to twenty years. And the real estate he gave them carried an inflated "appraised" value. Then there are all those contingencies you mention that can radically alter the terms of the sale many years down the road. Is Dougie really so smart that he has every possibility covered? Nobody can be that smart.

True. The deals are usually complex. Best, don bauder

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