The Globe Feels the Pinch
To understand what might happen to the Boston Globe in the very near future, it’s instructive to look at two episodes from the New York Times Company’s ownership of the paper.
Arthur “Punch” Sulzberger Sr., the former Times Company chairman, loves the Globe. The $1.1 billion purchase of the paper in 1993 was one of his finest moments. In their book The Trust: The Private and Powerful Family Behind the New York Times, Alex Jones and Susan Tifft write that Punch was positively “giddy” about the prospect of buying the Globe. When negotiations temporarily fell apart, he sent a case of French wine to everybody in New York and Boston who had worked on the proposal. An enclosed note read: “This would have tasted better with Boston baked beans.”
Punch’s son, Arthur “Pinch” Sulzberger Jr., the company’s current chairman, says he shares that zeal for the Globe. But he’s expressed the sentiment in odd and contradictory ways. Before the Taylor family sold the Globe to the Times Company, they extracted a promise from the Sulzbergers to not meddle in the paper’s management for five years. The Times Company also made what Jones and Tifft describe as a “moral commitment” that the Taylors—who had owned the paper for more than a century—would continue to operate the Globe long after that. The first pledge was kept, but not the second. (The Times Company, when contacted for this story, said it was “not aware” of any such understanding.)
In July 1999, Pinch Sulzberger fired Ben Taylor, who was then the Globe‘s publisher. Members of the remaining Globe brass were not pleased, and so, five months later, looking to explain himself, Sulzberger called a staff retreat at Blantyre, a resort in the Berkshires. At the meeting, Sulzberger strode into a room in which roughly 25 Globe executives had gathered. He carried with him a stuffed moose, which he then tossed onto the floor. Sulzberger explained that this was a Times tradition (one he would repeat years later at the height of the Jayson Blair scandal). Now that the moose was out of the bag, so to speak, the Globe people were free to say whatever was on their minds.
Many Globe executives had never seen management by stuffed animal before; it was regarded then, as it was during the Blair saga, as a ham-handed gesture. The meeting quickly became emotional. Nervous editors pressed Sulzberger: How could he have ousted the last Taylor so callously? Sulzberger grew exasperated and cut them off. According to then–Globe editors Gregory Moore and Tom Mulvoy, Sulzberger said, “The problem is, you guys thought this was a merger. It was an acquisition.”
He paused. “It was an acquisition.”
After that, things changed rapidly at the Globe. The Times Company replaced the paper’s finance executives with its own people. It did the same with the circulation department. Then the company started paring down the Globe‘s news division. In 2001, the Globe boasted 552 full-time newsroom employees; there have been five rounds of buyouts since. The most recent, to be finalized this month, aims to eliminate another 50 staffers. Only 329 newsroom employees will remain. In fairness, Sulzberger has called for four rounds of editorial buyouts at the flagship Times. Yet even after that bloodletting, nearly 1,300 reporters and editors still cover the day’s events for the paper of record.
Sulzberger has shown time and again that he values the New York Times far more than any other asset in the company. Beginning next year, as he does what’s needed to save his marquee property, the 18 other newspapers his company owns—the Globe included—will face a reckoning.
At first glance, it would seem the Globe is not likely to be among the potential casualties. After all, three years ago Sulzberger had a well-publicized chance to sell the paper to investors led by former G.E. CEO Jack Welch. The group’s advisers at J. P. Morgan thought the Globe was worth as much as $600 million. But Sulzberger and the Times Company refused to entertain the investors’ proposal. “We didn’t even get to first base,” says Joe O’Donnell, the Boston concessionaire who was part of the Welch group. “We didn’t even get up to bat.”
Sulzberger worked in the Globe‘s pressroom during his undergraduate days at Tufts. He doesn’t want to do anything to hurt it. But, like a lot of newspaper publishers, the Times Company has borrowed hefty amounts of money in recent years—and also spent what capital it had, buying websites and television stations, and building a new headquarters designed by famed Italian architect Renzo Piano. By the end of 2008, it owed $1.1 billion and had only $57 million in cash. More troubling, it was dipping into its revolving lines of credit to help cover routine costs like interest and dividend payments. In this sense, the Times Company wasn’t much different from a debt-addled home-owner during the housing boom, using his credit cards to pay his mortgage while treating himself to a flat-screen TV.
The problem is that one of the Times Company’s lines of credit, for $400 million, expires in May. The company, which declines to discuss its plans for the Globe, has been scrambling to raise money. It’s negotiating to sell part of its headquarters to a New York real estate investment firm, which should net about $225 million. It has hired Goldman Sachs to shop its stake in New England Sports Ventures, which includes part of the New England Sports Network and a 17.7 percent share in the Red Sox. All told, that stake could be valued at perhaps $166 million; as of this writing, no buyer has emerged. This may be part of the reason why the Times Company turned in January to Mexican billionaire Carlos Slim, who loaned it $250 million.
Those moves hardly put the Times Company in the clear, however. What has received little attention is that it must repay another $99 million this November, and $250 million the following March. Sulzberger could keep turning to private lenders like Slim, who charge seven times the interest—14 percent, in Slim’s case—of the white-shoe bankers from whom the company once borrowed. But that approach is untenable, if for no other reason than at least $380 million borrowed under one of those revolving credit lines comes due in May 2011. Making matters worse, it’s not just the borrowed money that the company must cover. It has also deferred paying $325 million to its pension plan in recent years. That obligation must be met by 2012. Meanwhile, Barclays predicts that over the same period, the Times Company’s newspapers and online properties will generate only $105 million in cash that could be used to cover these debt obligations. (The company says analysts’ reports are “highly subjective.”)
So other assets must be sold, and probably as soon as 2010. Could they include the Globe? Perhaps. But one argument against such a scenario is that the paper would fetch little money. A decade ago, the Globe‘s earnings before income taxes, depreciation, and amortization were $136 million. This year the paper will do well to break even; next year, Barclays estimates, it will lose $7.2 million. No one wants to buy newspapers these days, especially newspapers that lose money. That’s why the Seattle Post-Intelligencer, Tucson Citizen, and Rocky Mountain News might all close this year: No one will pay for those ailing titles and the debt they carry.
Yet a possible sale is also what makes the Globe‘s latest newsroom buyouts so interesting. According to a source at the paper, a starting Globe reporter makes $51,360 in salary and benefits, which means that if 50 starting Globies were cut from payroll, the company would save $2.5 million. Now, that’s a very conservative estimate; in all likelihood, some more-experienced reporters and editors (who Globe employees say earn salaries in the $100,000-to-$120,000 range) will go, too. If the buyouts fail to sufficiently cut costs, the Globe is threatening layoffs, a first for the paper.
If the Globe can shed its estimated $7.2 million debt and break even next year, or if—who knows?—it makes a little money, then it might appeal to a potential buyer. In that case, the Globe could be valued as newspapers were before the economy turned south: at a multiple of its cash flow. As late as 2006, newspapers were purchased at nine times their cash flow. It’s too early to say what the Globe‘s value might be, since it’s unknown how much the ongoing staff reductions will actually save the paper, or how its ad sales will fare. But it’s not far-fetched that a venerable name like the Globe, performing reasonably well in a terrible economy—and boasting a 78 percent growth in readership for its Boston.com website since 2005—could command enough at sale to cover one of the Times Company’s looming debt payments.
This might actually be the best scenario for the Globe. The alternative is that the buyouts do not offset the money the paper is expected to lose. Or that they do, but then advertising revenue declines further. In that case, the 50 newsroom positions lost in this current round of belt-tightening could look mild compared with what the Times Company feels forced to cut the next time.
Devin Leonard is a former Fortune senior writer.