Common Sense Banned In Boston

Philip M. Stone June 11, 2009 Follow on Twitter

Can you believe the New York Times Company bought the Boston Globe back in 1993 for $1.1 billion? Can you believe that just a couple of years ago former GE chairman Jack Welch was talking about paying somewhere in the region of $400 - $600 million to take the paper off the Times’ hands? And can you believe the Sulzberger family now has Goldman Sachs looking for buyers, but according to one respected analyst the paper today is not worth more than $20 million, and maybe quite a bit less?

The Globe’s story is sad, really sad, for all the missteps taken by management and now by the Newspaper Guild that this week voted down about $10 million in pay and benefit cuts and is now howling to the Feds because the company is going to impose a 23% pay cut.  What has been missing in Boston, and New York, for the past few years is plain old common sense.

It really dates back to 1992 when Arthur Sulzberger was newly installed as CEO of the Times Company but his father, as chairman, was still keeping a watchful eye on his prodigy. The son wanted to make his mark quickly and what better way than to buy the very prestigious Boston Globe owned locally by the Taylor family. Locals they may have been, but the Taylors were astute business people and made Sulzberger pay through the nose -- $1.1 billion which even in those days of 20% plus margins was way over the odds even if the paper did produce great annual cash flow.

But the Taylors, being paternal as local owners tend to be, were somewhat fearful of what the boys from New York would do to their newspaper so they made Sulzberger agree as part of the sale that current employees would receive lifetime job guarantees. Arthur would have given just about anything to get his hands on The Globe and so he agreed. That particular decision is now biting him hard where it really hurts!

Boston has been hurting the last few years, particularly since the Internet bubble burst at the turn of the century. Department stores have merged, the classifieds have nearly disappeared and so like many metropolitan newspapers The Globe is in real trouble. The Times Company says The Globe lost $50 million last year and is on course to lose $85 million this year and no one really takes issue with those figures.

Jack Welch. former CEO of General Electric rode into this mess a couple of years when things were bad but when no one really had any idea how much worse they were going to get, and told The Times Company that he, with investors, wanted to buy the newspaper. Although no firm figures were ever mentioned publicly the thinking at the time was that the newspaper was worth between $400 - $600 million.

The Times Company was already having some serious financial problems, it was selling its TV stations, shareholders insisted on the company buying up stock and increasing dividends to drive up the share price, and, oh yes, there was that new headquarters they were building in Manhattan, so $400 - $600 million then could have been put to really good use. But the company seemingly refused to give Welch the time of day.

ftm said at the time we couldn’t understand why The Times Company didn’t jump at talking with Welch-- surely sentimentality with one’s first major deal had no play there?  Welch today no doubt is thanking his lucky stars that he dodged that bullet.

Move forward to today and The Times Company has even worse financial problems. It has a debt noose it is trying to avoid by doing a sale-leaseback on its new building, it basically borrowed $250 million at 14% from Mexican entrepreneur Carlos Slim, there have been 5% pay cuts in New York and the dividend was slashed so how in that type of financial environment could it continue to afford The Globe with its $85 million annual loss?

Watching how Hearst and Gannett, as just two examples, told employees they even made multi-million dollar paybacks on wages and benefits or newspapers would close, the benevolent Times Company suddenly acted real tough in Boston. It told the unions it wanted $20 million in agreed cutbacks within a couple of weeks or the newspaper would be shut. And it wanted those lifetime job guarantees torn up.

Five of six unions agreed new terms but this week by just 12 votes the newspaper guild turned down the deal, knowing full well management had said if the deal doesn’t pass then the company will impose a 23% wage cut on guild employees.  No doubt those people who stood to lose their lifetime job guarantees were big naysayers. Someone needs to explain why one votes down 10% pay cuts and benefit givebacks when you know that results in a 23% imposed pay cut. Where’s the common sense except that those older employees voted to basically keep their jobs no matter what.

The guild is complaining to the Feds and at the same time employees are asking Sulzberger to personally get involved in the negotiations and to agree that whatever percentage reductions Guild members get then management should suffer the same.

In the meantime The Globe has run a story saying the Times Company has hired Goldman Sachs to solicit offers for The Globe. That doesn’t mean there’s going to be a sale, but management at least wants to see what kind of money might be out there. And let’s be frank -- who in their right minds would want to buy a newspaper that is losing money so heavily that the only way to get the costs down is a big reduction in staff costs but you can’t do that because there are around 470 highly-paid employees with lifetime job guarantees.

There is no light at the end of the tunnel to show The Globe will reach annual profitability any time soon. Most forecasts indicate that advertising will continue to decline through next year and perhaps bottom out in 2011. Even if the economy recovers sooner, there is no guarantee print advertising spends of the past will resume at the same levels as they once were, and there is the feeling that any increased advertising spend will come after the economy recovers rather than leading that charge.

One can’t help feeling for people who are being asked to take pay cuts; one can’t help but feel for people who thought they had a job for life only to see management try to strip that away. But common sense tells these people that the Times Company given its current financials simply cannot afford to continue losing more than $1 million a week in Boston.

And common sense says a 10% pay cut is a lot better than 23%. And common sense says those with lifetime job guarantees are going to vote to keep those guarantees. Obviously, common sense is banned in Boston.