Earlier this year, the McClatchy Company, the second-largest publisher in the U.S., filed for Chapter 11 bankruptcy. Analysts expect that Chatham Asset Management, the hedge fund that is among McClatchy’s largest creditors, will assume ownership, and the company’s newspapers are worried.
“The future of local, independent journalism hangs in the balance for Fresno and 30 other cities across the country,” wrote Ashley Swearengin, president and CEO of the Central Valley Community Foundation, which provides philanthropic support to the McClatchy-owned Fresno Bee.
In Miami, reporters from the Miami Herald and el Nuevo Herald formed One Herald Guild to campaign against the takeover. “If Chatham assumes control of McClatchy, it will impose a ‘private equity model,’” the group argues. “The results have been devastating for local news.”
And in Sacramento, Mayor Darrell Steinberg sent a letter to the bankruptcy judge overseeing the Sacramento Bee’s case, encouraging him to prioritize buyers “motivated primarily by a desire to serve the public interest, not the bottom line.”
Steinberg didn’t mention any potential buyers by name, but Miami’s Community News publisher Grant Miller did. The Knight Foundation, Miller argued, “should step up and invest in the chain that made it one of the wealthiest foundations in the country.” (In 2006, McClatchy purchased Knight Ridder, which was the second-largest newspaper company in the U.S. at the time, for $6.5 billion in cash, stock and debt.)
“If the Herald and other papers in the chain go down,” Miller wrote, “then the Knight Foundation has failed in its mission.”
The McClatchy bankruptcy and local dailies’ increasingly dire future have raised familiar hopes that philanthropy might ride to the rescue. But lessons gleaned from Baltimore and Chicago suggest that a confluence of factors—including funders’ reluctance to assume longstanding liabilities, and chains’ unwillingness to part with standalone outlets—can stymie the best intentions.
The Writing on the Wall
Miller’s call for Knight to rescue the Miami Herald comes at a time when several indicators have strengthened the case for a nonprofit transition.
Last October, Knight published a report titled “Philanthropic Options for Newspaper Owners: A Practical Guide.” Aimed at decision-makers considering a transition to nonprofit status, the paper explores the funding models of the Salt Lake Tribune, the Philadelphia Inquirer, the Seattle Times, and the Tampa Bay Times. “Newspaper owners stand at an important crossroads in the history of their communities and in news media history, with strong possibilities now emerging for owners to take visionary steps forward,” reads the executive summary.
A month later, the IRS approved the Salt Lake Tribune’s request to become the country’s first metropolitan daily newspaper to transition to a 501(c)(3) nonprofit. The decision, wrote Neiman Lab’s Christine Schmidt, created “a major opening for other newspapers who might find nonprofit status a more appealing alternative than selling or closing down.”
In January, Warren Buffett announced he was getting out of the newspaper business. Berkshire Hathaway sold off its newspaper operations after Buffett concluded that, save for a few national outlets, most papers would likely “disappear.”
Then the coronavirus hit. The pandemic amplified journalism’s intractable weaknesses while underscoring the realization “that civically important local journalism has to be partly a philanthropic function,” said Steve Waldman, president and co-founder of Report for America.
In June came the clincher: The Institute for Nonprofit News found that nonprofit news organizations have proved less vulnerable to the economic crisis caused by COVID-19 than their for-profit counterparts.
Looking for a Lifeline
Journalists at besieged for-profit outlets are taking notes. In April, the Washington-Baltimore News Guild, which represents workers at the Tribune-owned Baltimore Sun, launched Save Our Sun, a campaign to return the paper to local ownership under a nonprofit model like that of the Texas Tribune and the Salt Lake Tribune. The move came after Tribune Publishing, the company behind the Chicago Tribune and the New York Daily News, implemented coronavirus-related cost-cutting measures.
Once again, the backdrop here is an imminent hedge fund takeover. Alden Global Capital, which owns more than 100 newspapers, is the largest shareholder of Tribune Publishing and has two seats on the Tribune board. Save our Sun’s organizers fear that Alden will work to obtain majority ownership of Tribune as early as this summer.
“When you don’t have a strong newspaper in a community, corruption goes up, people are less informed and communities suffer,” guild President Jon Schleuss told the Sun. “I think the Pulitzer Prize the Sun won [earlier this month] shows the kind of journalism that will be missing if Alden takes over.”
A similar effort is underway in Chicago, where Tribune columnist Mary Schmich called on a civic-minded “hero” to step up and save the paper from an Alden takeover. Schleuss and Schmich have reason to be concerned. In 2018, the Alden-owned Denver Post published an editorial lambasting the hedge fund as “vulture capitalists.” A month later, three of its top figures, including its former owner, resigned. A group of regional investors eventually gathered $10 million in pledges to purchase the paper. Alden wasn’t interested.
When Hedge Funds Don’t Budge
Late last year, a group of Baltimore Sun reporters took a page from their Denver brethren’s playbook and reached out to funders and individuals that had expressed interest in acquiring the paper in the past, including the Goldseker Foundation, developer David Cordish, former politician Ted Venetoulis and the Abell Foundation. Created by the family that founded and sold the Sun, the Abell Foundation’s president, Robert C. Embry Jr., led previous efforts to return the Sun to local ownership.
As of late May, most of these would-be buyers were still interested in purchasing the paper, according to union officials. But talks never materialized because Tribune wasn’t interested in selling. The company’s intransigence makes you wonder: Why would Tribune Publishing hold on to a plummeting asset operating in a doomed industry like print media?
The answer, of course, is money. It’s more profitable for a hedge fund to keep a struggling daily than it is to sell it. “The whole point of being a chain is to take advantage of scale economies,” wrote Dean Miller, editor of the Seattle Times’ “Save the Free Press” initiative. “Reduce scale and you reduce the economies that shareholders love.”
Even if Tribune were interested in putting the Sun up for sale, a happy philanthropic ending is far from a done deal. The donors involved have acknowledged that if the paper were to hit the market, a bidding war among other interested buyers could push the price beyond the reach of local philanthropists.
Beware of the “Market Sharks”
It’s understandable why a hedge fund won’t sell a daily, since pulling one paper out of the chain “makes it more difficult to either sell entirely or to operate the rest of the chain,” media analyst Ken Doctor told me. But let’s turn this argument around. Civic-minded intentions notwithstanding, funders have plenty of good reasons to pass on taking over a struggling news outlet.
In a column by Ben Smith at the New York Times from late March, American Journalism Project co-founder Elizabeth Green toyed with the idea of making a play for Gannett, which was recently priced at $261 million. It wouldn’t have been outside the realm of possibility, as AJP hopes to raise $1 billion to support local news outlets. (The IP headline writes itself: “Meet the Funder That Saved 100 Dailies and 1,000 Weeklies from Oblivion.”)
As Smith writes, however, “Buying it would mean signing up to pay off a high-interest loan from a giant New York private equity firm and relying on an advertising business model that may be in its death throes because of the coronavirus.” It wouldn’t be worth it, she concluded.
Funders like Green can be forgiven for not wanting to deal with an omnivorous hedge fund. Indeed, one of the lessons of the Chicago Tribune journalists’ efforts to free itself from Alden is that “public-spirited investors big enough to buy a controlling interest in a company like Tribune Publishing aren’t eager to step in when a hedge fund is circling your publicly traded company,” wrote the Seattle Times’ Miller. “Troubled waters are the happy place of market sharks like Alden Global Capital.”
The Pension Problem
In his call for a philanthropic salvage, Grant Miller of Miami’s Community News also proposed that a Knight Foundation-led coalition of funders and investors could take on the Herald’s retirement commitment for former and some current employees. A noble idea, but pension liabilities pose some of the stickiest and most expensive challenges when it comes to a philanthropic media takeover.
When McClatchy filed for bankruptcy reorganization on February 13, it cited its inability to make contributions in 2020 to the pension plan for its 24,000+ employees and retirees. Post-bankruptcy, McClatchy and Chatham hope the federal Pension Benefit Guaranty Corporation (PBGC) will step in to pay beneficiaries.
But there’s more. Prior to filing for bankruptcy, McClatchy discontinued paying a “non-guaranteed” supplemental pension plan to retired executives. Not surprisingly, these retired executives are not pleased. On June 24, unsecured creditors, including the group representing retired executives, asked the federal court judge to consider giving them standing to sue McClatchy’s board and past and current top executives, arguing that the company and Chatham committed fraud when it did a debt restructuring in 2018.
Bottom line? “Pension debt in particular can’t be dispensed with as easily as a newspaper building or printing plant,” said Nikki Usher, associate professor in the University of Illinois’ College of Media. Similarly, Knight’s study of nonprofit models points out: “It is worth noting that a significant challenge for many for-profit news companies revolved around pensions. Resolution of pension liabilities is complicated and highly specific to the circumstances surrounding individual companies.”
The pension issue may be one reason that Miami’s philanthrosphere is laying low right now. A sale of the McClatchy-owned Herald would ask the city’s wealthiest residents “to enter into a bargain where they’ll pay the pensions of long-retired Miami Herald staffers,” writes the Capitolist’s Brian Burgess, “as well as the current salaries of the existing staff, in exchange for news stories that cost far more to produce than what the competition is paying.”
Tense Times in Tampa
I also suspect Miami’s funders have been paying close attention to developments 300 miles north in the Tampa Bay area. One of the nonprofit models featured in Knight’s white paper, the Tampa Bay Times, has fallen on hard times.
The paper is owned by the Times Publishing Company, which is owned by the nonprofit Poynter Institute for Media Studies. In April 2018, the paper laid off 50 employees. Two months later, Tampa Bay Beat’s Jim Bleyer gave a stark assessment of the Times Publishing Company’s financial outlook, which included $70 million in PBGC liens. In October, a group of local business leaders upped its loan to the Times Publishing Company’s pension plan from $12 million to $15 million.
In June of 2019, the PBGC filed its latest lien against the Times Publishing Company for failing to “make contributions to the pension plan required,” bringing the total amount of liens against the Times’ parent to over $103 million.
In February of 2020, the Times implemented a temporary 10% pay cut for all full-time staffers. Five executives, including chairman and CEO Paul Tash, who made approximately $488,000 in 2018, took a 15% pay cut.
The Tampa Bay Guardian found the announcement to be woefully insufficient. “Neither the Times board nor the Poynter Institute have apparently questioned Tash’s pay during the decline of the Times. Only now must pay be cut, and it must be 10% across the board, thus hurting the lowest paid staff the most.” (So much for the idea that nonprofit journalism model generates community cohesion and solidarity.)
In mid-March, the Times laid off 11 journalists. Executive Editor Mark Katches said the layoffs were not related to advertising losses caused by shutdowns from the coronavirus. On March 30, the Times reported it was eliminating five days of print and furloughing some non-newsroom staff, citing effects of COVID-19.
Toward a “Better Business Model”
After the IRS gave its blessing for the Salt Lake Tribune to become a nonprofit, Neiman Lab’s Christine Schmidt said we shouldn’t “expect much interest from the nation’s big newspaper chains” in the nonprofit model, given their adherence to a highly scaled business model. Chatham and Alden’s reluctance to shed their assets back that up.
Instead, Schmidt argues that the most likely candidates for the nonprofit route are those like the Salt Lake Tribune—papers controlled by a single individual or family with wealth outside of the newspaper industry. Examples here include Glen A. Taylor, who owns Minnesota’s Star Tribune, and John Henry, who owns the Boston Globe.
Elizabeth Green of the American Journalism Project goes a step further. She believes the industry should leave the market-driven “big chain” model behind and cultivate a network of nimble online nonprofit newsrooms. “We need to keep the values, keep the people, keep the lessons learned—and get rid of the shareholders and get a better business model,” she told the Times. Her fellow funders, most of whom aren’t touching beleaguered for-profit dailies with a 10-foot pole, overwhelmingly agree.
All of which brings us to the state of play in Miami, Chicago and Baltimore.
Investors interested in buying McClatchy papers like the Miami Herald and el Nuevo Herald have submitted initial letters of interest to the judge in the company’s bankruptcy case. In Chicago, there have been some serious conversations about turning the Tribune into a nonprofit, but nothing that has made it beyond any boardrooms, according to Dean Miller’s column.
And in Baltimore, Maryland’s two U.S. senators, 38 state delegates and 19 state senators were among 6,000 signatories urging Tribune Publishing to sell the Sun to the local group. Despite this upswell of public support, the paper remains firmly in the clutches of Tribune Publishing and Alden Global Capital.
“At this point, nothing has changed, so that’s where we are,” Venetoulis said in late May. He characterized ongoing efforts to buy the Sun as “aspirational.”