THE WRIGLEYVILLE WAR

PART FOUR

A Chronicle

53. Fidel Zell

54. Feast of Pigs

55. Civil War

 

FIDEL ZELL

February 24, 2008

It was the Las Vegas of the Caribbean. A playground for the rich and famous. But when poverty wedged between the working classes, a man came in to topple the status quo under the guise of reform and wealth for all of his people. Fidel Castro took over Cuba more than 50 years ago. Instead of prosperity, his island nation stagnated and rusted in a time belt from the 1950s. The moral of the story is sometimes you don't get the person you think you are getting to change things.

The man who led the coup at the Chicago Tribune was Sam Zell. Who exactly wanted him to take over the Tribune media conglomerate is becoming murky. At first, the Chandler family demanded the Board to cash them out, sell the company, or break it a part. Investment bankers looked at the Tribune businesses and passed on taking the company private or selling off the pieces for a profit. Almost all of the Tribune divisions, cable, television, newspapers, magazines, were struggling with revenue losses from declining advertising and recessionary fears. The whole print newspaper industry was under attack from the free internet information age. There were a few people who poked with a stick around some of the Tribune pieces but in the end, the Board decided to get rid of the Chandlers as fast as possible. The Board needed a white knight to put together a deal. Enter, Zell.

In a transaction that still has bankers and investment brokers scratching their heads, Zell took on billions of new debt on top of a debt heavy company bleeding red ink in order to gain control of the Tribune's assets. Before the deal close, the new alleged owners, the employees, objected to the lock-up of their stock plan burdened with the company debts and the lack of any participation in management. The unions were not happy with a private company with a heavy debt load because that would mean serious cuts - - - i.e. union jobs - - - on the horizon. The bond rating companies looked at the prospects of a chairman with no media experience running a media conglomerate as being junk, as in lowering the Tribune's bond ratings to three levels below junk status. Since the deal closed, the value of the Tribune's bonds have tanked which a sign on how the market believes the deal will end. Badly.

It was the existing Tribune Board that made the decision to sell out to Zell. In the end, they gave him not a seat on the board of directors, but a self proclaimed dictatorship. Zell made the rounds to his major newspaper newsrooms and conducted foul mouthed, insensitive and bizarre interaction with his professional staffs. He treated them like dish washers in a prison cafe. One day he said that he would go forward and make each unit dependent (so it could guide itself to profitability) but then the next week announce huge staff cuts.

Zell is scrambling to raise cash. He wants to auction off Cub field box tickets to squeeze quarters in the big picture. He wants to increase circulation figures to boost ad revenue. But in a strange marketing campaign, readers have the opportunity to get home delivery of the Sunday Trib for 99 cents, or Wed-Thur-Fri-Sun delivery for $1.00, or full weekly delivery for $2.75. The pricing structure makes no sense; Mon-Tue-Sat editions are worth $1.75, more than the Sunday edition? And the end of week editions are worth only a penny. Morale must be low in the newsrooms with a business plan that makes trivial certain editions of the newspaper.

But that what happens when Zell begins to surround himself with his people. A former shock-jock radio programmer and a former executive at a rental car agency are Zell's new lead dogs. He is consolidating control like a boa constrictor on its prey. The open question is still why. Why is Zell so charging on taking total control over the Tribune when in the end he put in none of the $350 million (his part of the intitial deal stake; he got that from other private investors). He has nothing at risk. He is not accountable to anyone. The employee pension stock is frozen in a trust which Zell controls. So why is Zell taking charge? What is it (profit) for him besides the power and ego of being a Fidel-like dictator? He made his money in real estate, so the only real link left is that his real intent is not to run the papers as a white knight, but to get final control over the Tribune's trophy real estate properties. Otherwise, this exercise in corporate takeovers makes no common sense.

See, also CARTOON MONSOON: FUKUDOME.

FEAST OF PIGS

May 25, 2008

The Tribune has been in bog of quicksand ever since Sam Zell came to alleged rescue. Zell continues to hire ex-radio people to run a newspaper-television business (some say into the ground). The Tribune continues to lose advertising dollars, revenue and asset value at a faster rate than its peers. The garage sale has begun with the sale of Newsday to a cable operator. The Chicago Cubs have been on the block for almost a year but there has been no movement because of utter greed.

Zell has the notion that the Cubs franchise is worth a billion dollars. It is not. Forbes magazine estimated its value in the $650 million range (or less if a new owner factors in Zell's own comments that Wrigley Field needs $150 million plus in repairs). The Red Sox were sold for $650 million, and Fenway Park was in better shape. There is no reason why the Cubs would command a huge premium in a tight credit and recessionary economy.

Zell sought to split Wrigley Field from the Cub franchise; hoping that he could get more from the parts than as a single package. The people who wanted to bid for the Cubs were not happy with that move. They were bidding for the Cubs and the ball park. It would make no sense to overbid for the franchise to be at the mercy of a new landlord. There was also some doubt whether major league baseball owners would approve such a transaction.

But since greed was in the air, in Illinois the political pigs will come sniffing around to see if they can profit from it. The idea that the State of Illinois should buy Wrigley Field, repair it, so the Cubs would remain in Chicago for the next twenty years made absolutely no sense. First, there was not even a hint that the Cubs or potential bidders were going to buy the team and move it out of town. (The only reason that could possibly occur is if the new team owner did not own Wrigley Field.) Second, the Cubs operation is supposed to be highly profitable, with sell-outs at Wrigley for the past decade. There is no reason for the State to own a piece of property that is functioning well in the private sector.

Why this was brought up was because Zell could not sell the field to a private party for the price he wants. Credit markets have squeezed and potential real estate investors never materialized. So the state power brokers, like former governor Thompson, figure that they could control this revenue producing property to their advantage, at taxpayer expense.

Thompson or Zell could never tell the public what the complete deal was for the State acquiring Wrigley. These secret deals are the worst kind. First, it was touted that the deal would not cost the taxpayers a dollar. Zell would sell Wrigley to the State for $1. The State would then sell bonds ($150 million to a final figure of $450 million) to renovate the stadium. The bond amounts made no sense if Zell was giving Wrigley to the State. He never was because that item was merely a PR scam. Zell wants the State or anybody to pay him hundreds of millions of dollars for Wrigley without any credit for cost of repairs. Also, Zell originally wanted to keep the new naming rights revenue (tens of millions of dollars in a twenty year annuity). In the end, the State tried to say that ticket revenue and naming rights would be enough to make the deal work. But in any bond deal, the taxpayers would be on the hook for a default. And the default was real because of the amount of money being borrowed exceeded the amount of revenue Wrigley could generate. By putting a huge burden on the new owner through a long term lease would plunge the value of the Cub franchise. Modern professional teams need to control all revenue streams of their home stadiums in order to survive and compete. The whole State ownership idea runs contrary to modern professional sports business plans. Then, when confronted with the reality of the situation, Thompson sought to divert one percent of the city sales tax to pay for the State bond obligations. Mayor Daley flipped out and said no, there would be no sales tax sharing with Wrigley Field. So the final State gasp at corraling Wrigley was a political fundraiser's claimed patented funding method of selling seats to fans in order to pay back the bonds. However, this was merely a syntax diversion for a long term personal seat license. Who would be willing to spend $100,000-$300,000 per seat for the privilege of buying expensive game tickets? It made no economic sense. But it did not have to because it was being proposed by politicians who have no concept of a real dollar because they never spend or risk their own on any project. The public treasury has been a bottomless well of money. In this final deal, Thompson and his friends would probably try to squeeze the contracts and divert revenue streams to themselves through licensing of this seat-license idea to the State for a percentage of the gross.

In the final comment, the Tribune flatly rejected this State plan for Wrigley Field. The Tribune thought the plan lacked legal and economic merit. It was too risky to succeed. So the Tribune was now willing to package the team with Wrigley. Immediately after the rejection, Thompson proclaimed that the State was still negotiating with Zell. This calls into question why Thompson and the State sports facility board is so desperate to get another piece of property to control with public funds. Let the sinister motivation speculation begin.

CIVIL WAR

SEPTEMBER 21, 2008

Current and former Los Angeles Times staff members have sued the Tribune, Sam Zell and his minions. The lawsuit alleges that Zell and others breached their fiduciary duty to the employees of the Tribune corporation through alleged self dealing, mismanagement and malfeasance. A review of the allegations finds fault with the actual structure of the Zell taking the company private by using a new employee pension plan (ESOP) to acquire all the common shares of the public company. However, the employees through their ESOP had no control over the new Tribune company or its management. Zell was in charge.

The problem with the lawsuit is that it is a hindsight damnation of the Deal. The deal was disclosed in SEC filings (the suit alleges no securities fraud or misinformation in the transaction), and voted upon by a major of shareholders of the public corporation. The massive amount of debt being used by Zell to acquire control of the Tribune was also disclosed, and some investment bankers at the time were troubled by the prospect of repayment of such an amount of debt in a soft economy. But the deal went through. And as a result, Zell hired failed radio executives to seize the wheel at the Tribune ship, and as the poor staffers now acknowledge, run the ship aground. Massive layoffs, cutting the news hole, insane email rants by the alleged innovation executive, steep revenue declines. The Tribune assets, including the newspapers, were profitable; but no profitable enough for Zell's debt service. So assets had to be sold, including newspapers and real estate. But the massive burden of the corporate debt has choked any value from the employee's pension fund.

What should have happened was an investigation into Zell and the specifics of his deal PRIOR TO the actual shareholders vote. The idea of a non-media person being the chief executive of a media empire in time of crisis makes no management sense. The actual numbers of the new debt service should have been placed side by side by the projected revenue (and revenue declines) to show that it is not feasible transaction in the long run. Remember, private parties and investment banks looked at the Tribune company before the Zell deal, to buy the company as a whole or to buy it and sell off all the pieces to make a profit. Those professional dealmakers all passed on the Tribune. But current major shareholders, the Chandler family, were pressing Tribune board to buy them out quickly. In a rush to get the Chandler civil disruption out of the Tower, management threw in with a perceived guardian angel, Zell, at the last minute. That last minute has turned into the longest hour for Tribune employees.

RETURN TO THE WRIGLEYVILLE WAR -- PART ONE

GO TO WRIGLEYVILLE WAR - - PART TWO

GO TO WRIGLEYVILLE WAR - - - PART THREE

 

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