HOW TO BANKRUPT A MEDIA COMPANY… AND SURVIVE

Sam Zell is a media baron – even though he knows less about the news business than a hog knows about Christmas.

Sam Zell is a media baron – even though he knows less about the news business than a hog knows about Christmas.

His actual line of work has been real estate huckstering – buying properties on the cheap from people who are in bad straits, then selling high. This business tactic earned him a less-than-flattering nickname: The Grave Dancer.

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A year ago, Zell picked up another property, the Tribune Company, which owns 12 newspapers and 23 television stations. To gain control of these media outlets, he put up only $315 million – less than four percent of the $8.2 billion purchase price. How did he finance the rest? By borrowing billions from Bank of America, Citigroup and other Wall Street firms, using the Tribune Company’s employee pension fund as his collateral.

Zell’s borrowing spree put an intolerable debt load on the company – it owes $900 million just in interest payments in 2009, for example. To pay the bankers, he’s been butchering his own product by slashing newsroom staff and trying to substitute marketing for journalism. This hasn’t worked, and now he has had to push the company into bankruptcy.

Zell and his banker buddies are going to be just fine, however, for they set up their arrangement so they are first in line to recover money from the bankruptcy proceedings. Citigroup, for example, already got $36 million in fees last year for packaging Zell’s purchase of the company and has grabbed millions more in payments for its loans to Zell. Now the bank expects to get most of its original investment back.

Meanwhile, the thousands of reporters and others who actually produce Zell’s product are at the tail end of the bankruptcy line, and they’re likely to be stiffed, losing their jobs, pensions, and other payments they earned. In a just world, Sam Zell would not be in bankruptcy court – he’d be on trial for grand theft.

“Workers Pay For Debacle At Tribune,” The New York Times, December 9, 2008.

“Tribune, Major News Chain, Seeks Bankruptcy Protection,” The New York Times, December 9, 2008.

“Battling the bastards is about as much fun as you can have with your clothes on.”

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