Daniel Gross on Dumb Money in the Newspaper Industry

Daniel Gross points out that the failure of many newspapers isn’t always due to the decline of an industry, but to stupid moves from managers:

In 2007, legendary real estate investor Sam Zell decided that a talent for good timing in flipping office buildings made him an expert on the ailing newspaper industry. In December 2007, he closed on the $8.2 billion purchase of the Tribune Co., which owned the Los Angeles Times, the Chicago Tribune, and the Chicago Cubs. Zell put down just 4 percent of the purchase price—$315 million—and borrowed much of the rest, leaving the company with a $13 billion debt burden. This deal was the purest expression of the “dumb money” mentality. The only hope Zell had of making a dent in the debt load and keeping current on the $800-million-plus annual interest tab was to sell off trophy properties like the Cubs, office buildings, and big-city newspapers—assets that themselves don’t throw off lots of income but whose purchase requires tons of cheap credit. Tribune Co. filed for bankruptcy Dec. 8, 2008.

Posted by on April 2nd, 2009 at 8:30 am


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