Wednesday, 28 January 2009


Financial pages are full of developments and changes at newspaper companies and these are being commented upon anxiously by those in the industry. Unpleasant conditions certainly abound, but these development are not indications that the industry is dead or dying in the near future. What they signal is that things which worked in the past are not working now, that newspaper companies are badly in need of restructuring, refocusing, and renewal, and that the boards of the companies and the company managers are taking badly needed action.

The techniques for restructuring are no mystery. First, you need some cash. This can be obtained by attracting new capital through investment or loans. New York Times Co. did this recently by borrowings $250 million from Carlos Slim. Other firms are looking for friendly investors with liquidity.

Another way of raising cash is by turning assets into cash. A classic move made by many types of firms is the sell their building and lease back any space that is needed. Media General and New York Times Co. are currently employing this tactic. Financially troubled companies can also be expected to shed some of their poorest or best performing holdings to raise cash, so it is likely that we will see a number of newspapers companies putting papers up for sale in the near future.

Reducing and restructuring existing debt lessens financial performance pressures on companies. To accomplish it, they use cash that is raised to pay obligations imminently due or to make early partial payments to debt holders in exchange for obtaining better interest rates or lengthening payment terms. Watch for such transactions in the coming months.

As part of restructuring, many newspaper-based companies will seek to refocus on core news and informational activities, divesting non-core activities to raise cash. Baseball teams, holdings in cable systems, advertising service firms, and other types of peripheral companies are being sold or considered for sale.

Few newspaper company executives have experience restructuring and reorganizing their firms to make them leaner and more efficient or strong financial management background. The current environment requires different managerial skills so many newspaper firms will be looking outside the industry for experience. GateHouse Media, for example, has now hired a chief financial officer with a financial management background at companies including PayCheck, NCR , and PriceWaterhouse.

Expect to see multiple actions throughout the industry that are parts of the restructuring of newspaper companies in the coming month. Some will be painful, but will have two effects. First, it will lessen the financial pressures of the debt many companies are carrying. Second, it will force them to rethink their newspapers and the value and quality they are or aren’t providing.

Sunday, 25 January 2009

Last Train to Belmont?

In its infinite bureaucratic wisdom, the New York Metropolitan Transportation Authority has decided to eliminate race-day train service to Belmont Park. The service, provided by the Long Island Railroad, has for many years permitted racing fans from Manhattan and Brooklyn to use mass transit and arrive right at the entrance to the Belmont grandstand. In fact, my own initial exposure to racing was via this very train; as a high school student, I'd make the trip from Manhattan and hope the mutuel clerks would ignore the fact that I was only 16 (and looked 14) and let me get my $2 bets down.

It was on the train that I got my first lessons in handicapping, from grizzled veterans of the track who were only too happy to show off their expertise.  And the 45-minute trip provided time to explore the mysteries of past performances. It's pretty hard to focus on the Racing Form while you're driving to the track.

But, in an age of declining race track attendance generally, and of ever greater reliance on the automobile, I suppose that the train no longer carries the thousands of fans that I remember from racing's glory days in the 1950s. More likely, it's a few hundred fans a day, maybe even fewer on weekdays. The only day the train service is crowded is Belmont Stakes Day in June -- the one day a year that the MTA now proposes to run the train.

The MTA, admittedly, has a money problem.  By law, it's required to have a balanced budget, and its only significant source of revenue, apart from passenger fares and bridge and tunnel tolls, is the New York real estate transfer tax.  When the property market was booming, the MTA was flush.  Now that housing prices are falling, even in the New York area, and sales volume is diminishing to the vanishing point, that tax doesn't seem like such a friend of mass transit.  So, for the coming year, the MTA is proposing an average fare increase of 23% on the subways, buses and commuter trains, higher tolls on the bridges and tunnels connecting Manhattan with the rest of the world, and eliminating what its staff has determined to be "underutilized" services.

In a rational world, of course, this "solution" would be insane.  Raising fares by such a huge amount will inevitably reduce transit ridership. That will cause revenue to fall below the MTA's current projections, setting off yet another, self-destructive round of fare increases and service cutbacks. Mass transit, especially in a dense urban area like New York, should be subsidized.  It's not just the people who ride the trains and buses who benefit; it's also, and even more, the government agencies and businesses that need a way to get their employees to the workplace. And now that New York racing is, for all practical purposes, a creature of the state, it would make sense for the state to support one of the few services -- the train to Belmont -- that actually has the potential to expand the fan base.

State law requires the MTA to hold a hearing in each of the five New York City boroughs and in each of the suburban counties that it serves, an exercise in masochism on the part of the MTA Board members and executives who sit there being abused for hours. So, in the hope of sounding a note of rationality, and representing the New York Thoroughbred Horsemen's Association -- I've been on the NYTHA Board of Directors since 2002 -- I went to last Wednesday's public hearing, which was in Garden City, just ten minutes down the road from Belmont. Along with NYRA officials Joanne Adams and John Lee, not to mention at least half a dozen elected officials and civic association representatives from the Belmont area, I discovered that the Belmont train issue was far from the top of the agenda.

First, there was the outrageous, and, I trust, entirely cynical MTA proposal to raise Nassau County handicapped access fares by 100%. That brought out maybe 50 people in wheelchairs to register their opposition and, if I'm right about the MTA's reasons for the proposal, provide the MTA with ammunition to make a case in Albany for not abusing the handicapped.  Then there was the ticket-sellers union and their labor comrades, protesting plans to eliminate manned ticket booths from virtually all Long Island stations. And, of course, elected officials have to be heard before we citizens get our turn.

So, as 10 pm neared, Joanne, John and I finally each got our three minutes of quasi-fame (if, that is, being on a video on the MTA web site at some unspecified time in the future qualifies as fame). We all made the points that needed to be made, which John did a nice job of summarizing in a press release put out by NYRA yesterday:

  • at a time when we should be saving energy; it makes no sense to eliminate public transportation to sports events;
  • eliminating the train to Belmont eliminates the possibility that Manhattanites, few of whom have cars, will ever discover the joys of the race track; and
  • it's particularly crazy to shut down the train station at Belmont just as civic groups there are moving ahead with plans to develop the area right around the station
Despite the stony silence from the MTA Board members and executives -- who could blame them after four hours of being berated by people in wheelchairs, on respirators and with white canes? -- there is some room for hope.  An alternative plan is floating around Albany that would give the MTA revenue from a payroll tax on commuters and that would both avert the draconian service cuts and fare increases and allow the MTA to go ahead with some much-needed capital improvements.

But, as we saw last week with the fiasco over the appointment of a successor to New York Senator Hillary Clinton and with the long-expected indictment of former State Senate majority leader Joe Bruno -- for, among other things, failing to provide "honest services" to the citizens -- going to Albany with a sensible plan is no guarantee of success.  I fear that the relatively small matter of the train to Belmont will simply get lost in the furious horse-trading (sic) that passes for a legislative session in New York State's capital.

But, if you'd like to lend a hand in saving this public service, and if you live in New York, here's where you can find the names, numbers and addresses of your state legislators.  It can't hurt to let them know you care about this issue, and it might help save the train, and future generations of racing fans. I the meantime, if you're on Facebook, you can join a group that's working on ways to speak truth to those in power on this issue.

Saturday, 17 January 2009

On to the Two-Year-Old Sales

The last of the big mixed sales -- Keeneland January -- has just ended, with the expected horrific results.  Only 213 of the 407 horses catalogued for Saturday, the final day of the sale, managed to find a new home, even at bargain-basement prices. The rest were either scratched or failed to meet their much-reduced reserves.

It's pretty depressing, actually, to look through today's results from Keeneland. Many, many horses going for $1,000 or $1,500. For the day as a whole, the average price for those that sold was $8,431 and the median a depressing $4,000.  I'd be surprised if more than a handful of the horses offered today did as much as break even for their sellers, after taking into account stud fees, the cost of raising foals, and sales-related expenses.

For the six-day sale as a whole, the numbers were truly awful.  The gross sales dropped by more than 50% from last year, to a puny $32.8 million.  And despite a continuing shrinkage of the catalog -- two years ago the January sale listed 2,933 horses, compared to only 2,379 this year -- the sale's average and median price also plummeted.  Average price for the 1,338 horses that actually sold this year was $24,532, down 48% from last year, and the median -- more reflective of where the true middle of the market is -- was $9,500 this year, down 44% from last year's $17,000.

While last September's Keeneland yearling sale sent out some early-warning signals, declining by some 20-plus percent, the fall and winter mixed sales have revealed that thoroughbred breeding is by no means immune to the nationwide financial meltdown.  While only a couple of highly visible people in racing have been caught up in the Bernie Madoff Ponzi scheme, lots more have apparently been so shaken by the collapse of the securities and credut markets that they're just sitting on whatever money they have left, and certainly not spending it on luxury toys like thoroughbreds.

The fall and winter sales have sent a signal that the industry needs to slim down. It is probably already doing just that. Even with stud fees reduced and flexible deals and terms being offered by many Kentucky stallion farms, demand for 2009 stallion seasons is reportedly very slow.  When most yearlings won't even sell for the stud fee, there's not a lot of point in rushing ahead into breeding.  If the 2010 foal crop is substantially reduced, as breeders take thousands of marginal mares out of production, we'll probably have a lot healthier industry when/if the broader economy recovers.

Meanwhile, though, there are a lot of important players who must be getting very worried. The breeders of the 2009 foal crop, for example. It's hard to see many of them making money on this year's foals, and many will be squeezed by the banks that they depend on to give them the credit that carries them to the next sale.

And then there are the pinhookers in Ocala, getting ready for the start of this year's sales season.  While many of them were a bit more cautious last September than in prior years, they still, as a group, have a huge investment at stake in their horses, and a shortage of buyers at the sales in March, April and May could devastate their business model.

Pinhookers buy lots of yearlings, push them through a tough basic training in Ocala to get them ready for the breeze shows at the spring sales, and hope a few of the horses are the "home runs" that can pay for all the rest -- the $75,000 yearling that sells for $1 million because it runs an eighth of a mile in 10.0 seconds. (Or, even better, sells for $16 million if, like The Green Monkey, the horse runs that eighth in 9.8 seconds, no matter that he did it in a rotary gallop that tells one nothing about how he'd stand up to training for real race distances.)

The buyers at the two-year-old sales are mostly folks who actually plan to race their horses -- what a concept! With purses flattening out as handle declines and costs increase, the economics of racing certainly aren't getting any better. Couple that with the severe, continuing shortage of credit, and it's hard to see that there will be a lot of enthusiasm on the part of prospective buyers at the spring sales. Sure, John Ferguson of Godolphin and Demi O'Byrne of Coolmore will probably show up, and every Ocala pinhooker is hoping to have the horse that gets the two of them into the kind of bidding war that produced a $16 million Monkey.

But if you don't have that horse, it could be a pretty rough sales season. A lot of the Ocala pinhookers are excellent horsemen and women, and many are genuinely nice people as well.  It's going to be a rough adjustment for some; they're the people who are stuck with an expensive inventory just as the market is going in the wrong way.  That's not often a recipe for success.

Friday, 16 January 2009


The bankruptcy filings of the Minneapolis Star-Tribune and Tribune Co. are cast by many as a sign of the continuing decline of the newspaper market. However, it is noteworthy that neither firm is owned by a company with a newspaper heritage, but by firms in the newspaper business primarily for financial gain. The Tribune’s owner is from the real estate business and the Star Trib’s is from private equity.

There is no doubt that the newspaper business is facing a difficult time now, but the business origins of the owners are important because their perceptions of bankruptcy, how the community will react, and how the company will be seen afterwards are colored by the norms and mores of those business fields.

Newspaper companies have long played special roles in communities, exercising social and political influence, and promoting corporate responsibility, accountability, and community standards. Publishers and editors have typically sat with the other civic leaders on boards and committees of chambers of commerce, community development organizations, foundations, and local offices of the United Way and the Better Business Bureau.

The roles and influence of newspaper executives were founded on their standing in the community and of perceptions of their respectability, community interest, and fiscal dependability. Newspaper publishers and editors would loathe any hint of financial instability or impropriety that would mar those views. The reputation of the newspaper and its brand were inextricably linked.

Newspaper companies have survived depressions, recessions, war, and all kinds of economic uncertainty in the past. They did so because they were financially solid companies with equity structures and balance sheets that allowed them survive very uncomfortable financial circumstances. Companies like the Tribune Co. and Star-Tribune are based on weaker foundations and come from cultures in which bankruptcy to reduce debts or abrogate contracts—hurting local businesses and their own employees--is just another business tool.

As I have previously discussed in this blog, there are a number of companies with long newspaper histories that are carrying significant debt or struggling with investors. It will be interesting to see how they handle their economic crises and the efforts they make avoid the stigma of bankruptcy. I suspect most will find other ways of dealing with their financial predicaments--unless they feel that the Star-Tribune and Tribune Co. choices have changed the norms for the entire industry.

Saturday, 10 January 2009


The announcement that the Seattle Post-Intelligencer is being put up for sale—a legally required step before shutting down the paper because it is in a joint operating agreement—has stunned many of its journalists. Their reactions, in news stories and their own blogs, reflect the continuing state of denial that their profession exists within a news business affected by financial and economic forces. Or, at least, their belief that it should be immune from them.

It should comes as no surprise that Hearst Corp. is seeking to end publication of the P-I. Its joint operation with Seattle Times has been an unhappy marriage and it has not been financially effective for many years. Changes made in the agreement in recent years have been insufficient to turn the operation around and the paper and JOA operation have continued to be a financial drain on its participants.

A similar offer-for-sale-before-shutting-down process is underway in Denver, where the Rocky Mountain News is likely to cease publication because E.W. Scripps Company is no longer willing to continue bearing its losses.

Joint operating agreements have been seen by many in the industry as a way of keeping two newspapers operating within the same city, but JOAs have been a continual failure since they were authorized in 1970. The biggest problem is that JOAs ignore the basic economics of newspaper publishing and merely provide benefits from a newspaper antitrust exemption that allows collusion on advertising and circulation prices, market division, and other acts prohibited by federal law. Those benefits were never enough to “save” papers in the long run, but allowed publishers to gain a limited period of time to try to squeeze more money out of the operations.

The vast majority of troubled papers in the past 4 decades were never able to get the leading paper in their towns to enter a joint operating agreement and they ceased publication without one. Even the majority of those that entered JOAs saw one paper cease publication. Only 9 JOAs that publish two papers still remain in force and it looks like it will soon be 7.

Two years ago I published a scholarly article on how JOAs end and I warned that Seattle exhibited many of the negative conditions that were likely to lead to its demise. And that was before the economic downturn. Sometimes I hate getting things right.

Link to article Natural Death, Euthanasia, and Suicide: The Demise of Joint Operating Agreements

Thursday, 8 January 2009


There is one upside to all the advertising disappearing from newspapers……Consumers can now really see what they are paying for.

Opps, that’s a BIG downside.

With the effects of economic downturn clearly hitting retailers everywhere, they have slashed their advertising budgets and are advertising as little as possible. For the first time in my lifetime it means you can turn several pages in many newspapers without seeing an advertisement. When I read the Boston Globe on Tuesday (January 7), it essentially had 2 pages of ads in the 10-page A section, 3 pages of ads in the 16-page B section, and 1 page in the 8-page C section. It had no ads on page 1 (although it has been announced they will start doing so soon) and the daily classified section is no longer being published on weekdays. What was left was editorial content. Unfortunately, what was there wasn’t pretty.

In reading the paper I realized that about half the stories were from news agencies and services and that I had read many of them day before on Yahoo! News and the New York Times and Washington Post websites. A number of the paper’s local stories were on the site or other Boston sites before they appeared in print. I am an avid news consumer and love the paper format, but the paucity of original and novel content left me wonder “Why am I still paying for the paper, especially when I have to call at least once a week because of delivery problems.”

I single out the Globe here, but the problem is everywhere I look at newspapers.

Publishers and editors just don’t get it. They have to stop pining that the old days were better and they have to stop blaming everything and everyone but themselves for the lack of value in their papers. What readers need—if they are going to keep buying papers—is content and an experience with news that they cannot get elsewhere. It has to be BETTER than that on TV, Internet, and mobile applications; it has to DIFFERENT than what they get from those sources; and it has to be news for those who LOVE news.

If editors and publishers don’t start delivering those qualities, they will soon have to stop delivering papers altogether.

Tuesday, 6 January 2009

The Future of Racing?

That's Sportsman's Park in Chicago, where demolition started yesterday, but it could be a number of other tracks in the not too distant future.  Racing needs to shrink, concentrate, and develop a focus. And that means that there won't be much of a justification for keeping a lot of tracks alive, as ever more betting shifts online.  This year's significant decline in handle, concentrated in the last few months of the year, will accelerate the process, inter alia by forcing Frank Stronach's Magna to sell of its tracks.  A year from now we may be looking at a very different industry.