Tuesday, December 09, 2008

Revisiting the Tribune Bankruptcy

We need to clarify something about the the Tribune Company bankruptcy. We still think the beginning of the end of newspapers started when journalism got the high fallutin' notion that it was a white collar profession that could be sanctified by a college degree instead of sweat, raw talent, and dedication. But we do realize this isn't the immediate cause of the Tribune Company's bankruptcy.

That happened because Sam Zell, the guy who bought two of the leading newspapers in the world along with a number of other businesses, didn't give a fig whether they survived or not. He's not a journalist. He's an amoral businessman whose only interest is in enriching himself. Zell used other people's money, including money belonging to the newspaper's employees, and a promissory note, to buy the multi-billion dollar mega-corporation:
“I’m here to tell you that the transaction from hell is done,” Mr. Zell said last December when he sealed his $8.2 billion takeover of the publisher of The Chicago Tribune and The Los Angeles Times.
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Mr. Zell financed much of his deal’s $13 billion of debt by borrowing against part of the future of his employees’ pension plan and taking a huge tax advantage. Tribune employees ended up with equity, and now they will probably be left with very little.
Wall Street calls this a "leveraged buyout" to give it a tony-sounding aura of legitimacy. But if you were to grab other people's money without their permission and then try to buy something with it, the cops would call it robbery.

The end result is that two profitable newspapers -- both the L.A. Times and the Trib do turn a modest annual profit -- and a kiosk full of their sister publications, including Newsday, the Hartford Courant, the Orlando Sentinel, and the South Florida Sun Sentinel -- were saddled with a towering debt that no amount of reasonable profits could possibly pay off.

So, in the immediate sense, the Los Angeles Times and Chicago Tribune were not bankrupted by a failure of journalists. An out-and-out crook beat them to it.

There oughta be a law.

Dept. of Amplification
12-9 am
Duncan Black has it exactly right:
If I understand this correctly, Sam Zell basically bought his newspaper empire by pretending the employees were actually the owners and then borrowing lots of money in their name, paying it back by deducting from payroll.
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Innovation!
It's thievery, as we said above, made legal only if you're a Wall Street tycoon.

1 comment:

Mberenis said...

Obama did it for us! There is a bailout for the people. Everyone qualifies. I got $750,000.00USD in grants for my bailout.

Claim your free Bailout Grant