The Boston Globe Is Losing $85 Million This Year; The Unions Are Giving Back $20 Million, But That Still Means A $65 Million Loss -- Surely We’re Missing Something Somewhere?

Philip M. Stone May 7, 2009

Everyone understands the New York Times Company has money problems – it’s done a sale-leaseback on its new headquarters building, it has issued bonds paying 14% annual interest, its employees are taking 5% pay cuts and major debt payments are looming, so just how can it continue taking on $1 million a week losses at ‘The Boston Globe’?

Much has been made that the Times Company has persuaded the unions in Boston to give back some $20 million in annual labor savings, but the newspaper was losing $85 million a year so that means it will still lose $65 million. Maybe there’ll be some other savings along the way but to absorb losses of around $1 million a week takes the likes of a company like Berkshire Hathaway, not a New York Times Company.

Was the idea just to get the newspaper in shape for a possible sale? Is that why the company was so adamant it wanted to dump lifetime job guarantees for those employees still at the newspaper who were inherited for life as part of the $1.1 billion buy in 1993 from Boston’s Taylor family that had operated the newspaper since 1873?

The Taylors acted very much like a family business knowing how a big company might treat employees rather than as a family business did so it insisted in the sales agreement that current employees would be safe for life. Arthur Sulzberger, newly into his position as CEO, would have given just about anything to get the deal  -- the $1.1 billion was way over what The Globe was worth even in those days, even with projected cash flows – so he agreed to those lifetime guarantees. And that part of the deal is today killing the NYT Company.

No one wants to buy a newspaper with those built-in costs. There are thought to be 450 – 470 of those employees still on the payroll and with their seniority they’re probably among the highest paid people at The Globe.  If you’re trying to get the newspaper in shape for a sale then you want that lifetime security gone.

The newspaper guild that has some 200 of those lifetimers had said messing with the lifetime guarantees would be a non-starter but at the end of the day there apparently was some give although as this is written we don’t know exactly what.

Even so, who would want to buy a newspaper in Boston that is still going to lose around $1 million a week? We said earlier that was the kind of a loss a Berkshire Hathaway could probably stomach, but even Warren Buffett made very clear just a few days ago that he wouldn’t go near newspapers today. He sees them on course to lose considerable amounts of money for years to come.

There had been rumors floating around Boston that the owners of the Boston Red Sox baseball team might be interested in buying The Globe – if for no other reason than the great daily publicity the newspaper gives the team every day – but the Red Sox owners released a statement a week ago saying they were not interested.

Back in January The Times Company said it wanted to sell its 17.8% share in New England Sports that owns the Red Sox but so far there have been no public takers.

Remember, buying The Globe was one of Arthur Sulzberger’s first business ventures after he became CEO in 1992 although his Dad still ran the board. Is that why Sulzberger said a couple of years back said he wouldn’t even enter discussions with Jack Welch, former GE CEO, who with investors was looking to buy the newspaper for some $400 - $600 million? We said a couple of years back we didn’t understand why The Times Company didn’t jump at talking with Welch-- surely sentimentality with one’s first major deal has no play here?  Welch today no doubt is thanking his lucky stars that Sulzberger wasn’t interested.

At what price The Globe today, especially a Globe losing $1 million a week. Answer: Not very much at all, if anything. Value may be in the land, the building and so on, but the newspaper itself – not much! It is thought that Copley sold The San Diego Union Tribune for around $50 million and that was for a newspaper allegedly still making some money. The land that went with the deal was said to be worth more than that, so Platinum Equity probably doesn’t have much risk there as long as they can keep the newspaper profitable.

But 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.

In a similar situation, Hearst said was no longer willing to lose $1 million a week at The San Francisco Chronicle and said it would close it down if it didn’t get significant union givebacks. It got those givebacks but here we are with the Times Company apparently pleased just to get The Globe’s losses down to $1 million weekly. Go figure!

So given all of that, even with that $20 million in union givebacks, why is The Times continuing to keep The Globe? If it is not to set the paper up for a sale then surely that $20 million is just the first round of further cuts to come? Surely the people running the Times Company are not stupid; obviously they must know something that we don’t? They must see some light in the tunnel that we don’t? Are they looking at massive job consolidation deals with competitors to cut costs drastically – deals that never would have been contemplated even a year ago? Higher newsstand and subscription prices? Smaller distribution areas? Or are they just putting off the inevitable hoping Congress will rush to the rescue and allow newspapers to become tax free nonprofit foundations?

One would think that investors deserve to know the strategy behind the company willing to absorb such Boston losses.