Newspaper As Community Arts Patron:Too Much of a Good Thing?
CORRECTION appended below.
Distant corporate owners have become the stock villains of the current newspaper scene. It's a scenario that implies a nostalgia for the old-time family proprietors, tight with their hometowns, enlightened boosters who generously support local causes. They are, perhaps, a vanishing breed -- but not totally extinct.
Meet the Davidsons of Daytona Beach, Fla. Patriarch Tippen "Tip" Davidson, himself the grandson of the founder, still chairs The Daytona Beach News-Journal's holding company at age 80. His son and daughter also work as News-Journal executives. Grandchildren are in the wings to continue family control. The publisher's husband has long served as the company's lead lawyer.
Tip Davidson once studied at The Juilliard School and is an avid patron of the arts. The company funds both a theater company and a nonprofit organization that brings classical concerts to the city. Davidson led a decade-long drive to build a performing arts center, which opened this January. The News-Journal paid $13 million -- up front, in cash -- for 26 years of naming rights to the building.
But the News-Journal has a minority owner -- Cox Newspapers, based in Atlanta -- which picked up a 47.5 percent stake in 1968 as part of a deal to buy The Palm Beach Post. Relations between the two companies are not cordial. And when Cox executives found out about the naming-rights deal only after reading a "Dart" about it in the Columbia Journalism Review, they went the corporate version of ballistic -- deciding, literally, to make a federal case out of it.
Two years ago, Cox sued The News-Journal Corporation in U.S. District Court in Orlando, charging that the $13 million was egregious squandering of corporate resources for which Cox should be compensated. Later, the lawsuit morphed, as the News-Journal gave notice it would exercise an "irrevocable" option to buy out Cox. It was left to the court to determine a fair value price.
Not surprisingly, the two sides and their expert witnesses were miles apart on that one: Cox claimed it was entitled to $145 million. The News-Journal argued the stake was worth only $29 million. A trial wrapped up in December 2005. Judge John Antoon II has been deliberating since, and a verdict is expected soon.
Both sides declined to discuss the matter now with Poynter Online, Cox citing the imminent judgment. An appeal of any action is possible, especially if the ruling is not favorable for Cox, since an appeal would change the venue from Florida to the appeals court in Atlanta, Cox's headquarters, and would extend the case for at least another year.
Choosing your metaphor, the Cox-Daytona case might be the equivalent of a messy divorce or an interminable and expensive "Bleak House" drain in lawyers' fees. Juicy details abound:
- Discovery indicated that the directors of the newspaper holding company and the boards of three of the non-profits receiving millions in donations were basically made up of the same people. So Cox is alleging a broad pattern of self-dealing and tens of millions of dollars of corporate waste on pet projects.
- The newspaper's regular support of the Seaside Music Theater was equal to sacrificing more than 2 percentage point of annual profit margin.
- The $13 million was equivalent to two years of net earnings.
- In 2000, the newspaper's lawyer, Jonathan Kaney Jr., wrote Davidson a 24-page memorandum warning of "a serious problem" with the Seaside Music Theater arrangement. "Through a decision-making process infected with conflict of interest and neglectful of corporate interests, spending on the (theater's) programs has grown out of proportion to either the company's ability to pay or the benefit it receives," he wrote.
How this "privileged and confidential" communication from the News-Journal's own lawyer got on the record is unclear, absent comment from either side. Though it predates the naming-rights decision, Cox leapt on the document as proof that Davidson was fully aware that the arts patronage was excessive but went ahead with it anyhow.
The dispute has nothing particularly to do with journalism as practiced at the two companies. Cox, privately held, is the 11th largest chain in circulation. Among its 17 daily papers, company flagship The Atlanta Journal-Constitution, Dayton Daily News, Austin American-Statesman and The Palm Beach Post are all considered strong editorially.
It’s often difficult to discern how closely a newspaper’s reputation lines up with what’s actually happening at the place currently. The News-Journal has a feisty editorial page, a large news staff and long list of recent awards. But my own sense of the paper is that it still has a ways to go to break into the top rung of such mid-sized Florida papers as the Naples Daily News (an E.W. Scripps Co. paper) and the Sarasota Herald-Tribune
Cox president Jay Smith has said he attended annual meetings of The News-Journal Corporation for years, but received no response to suggestions for investments in modernization that would strengthen the business. It benefits, as do many Florida newspapers, from being located in a fast-growth area.
The "fair value" question is complex, but turns on two very different approaches. Owen Van Essen, a newspaper broker and expert witness for Cox, testified at the trial that the paper should be valued as if it were operated by a profit-maximizing corporation and yielding a 28 percent pre-tax margin.
The News-Journal counters that it has every right to operate the newspaper as it does with lower margins and investments that build the Daytona Beach community and the paper's reputation. The News-Journal is debt-free and healthy financially, its lawyers argue, just not throwing off earnings that would justify the payout Cox wants.
Also at issue is whether Cox is entitled to 47.5 percent of the value of the whole. Cox says yes. The News-Journal argues the minority stake should be discounted 20 percent because it lacks marketability.
Was $13 million an excessive payment for naming rights? Cox argues that the newspaper is a dominant monopoly in its community and had no legitimate business reason for that kind of expenditure. By contrast, the St. Petersburg (Fla.) Times, owned by Poynter, is paying $2.5 million a year for naming rights to a sports and concert venue in Tampa, Fla., where it competes for readers and community presence with The Tampa Tribune. Just this month, the Albany, N.Y., Times Union acquired naming rights to the arena in that city (a metro area 75 percent bigger than Daytona Beach) for $350,000 a year.
A financial wrinkle further weakens the News-Journal's position. The corporation explained that it valued the rights at $500,000 a year. But, by paying in a lump sum up front -- and thus making the project viable, it ignored the concept of "present value of money," and effectively will be overpaying for the last 25 of the 26-year agreement.Even by independent newspaper standards, though, the Davidsons could be considered lavish. Cox called as an expert witness Frank Daniels Jr., who was publisher and president of his family's News & Observer in Raleigh, N.C., until it was sold to The McClatchy Co. a decade ago. At the end of a long afternoon's deposition, he was asked if he had a formula for how much to give to a drive for a local facility. Maybe one percent, Daniels replied.
"Let's face it, Bruce," he then added, addressing a News-Journal lawyer, "the name of the game for a corporation, for a newspaper, is not to see how much you can give, but to see how little you can give and not look like a pariah in the community."
But have the Davidsons done wrong with a different giving philosophy? And how would unjustified arts spending factor into a fair value price?
Judge Antoon revealed a little about his thinking as the trial concluded in December. He said he was sympathetic to the Davidsons' claim that they should be able to run the paper as they thought best. He also questioned whether Cox was trying to have it both ways by claiming the paper was damaged by the donations but should still be valued like any other newspaper its size. On the other hand, he said,"if there is bad conduct" on the part of the News-Journal, it shouldn't be rewarded by a bargain buyout price.
CORRECTION: The original version of this article relied on imprecise language and unattributed sourcing to assess the editorial quality of the News-Journal. Inclusion of that assertion without clear attribution violated Poynter’s publishing guidelines. Assessments of editorial quality involve personal, subjective judgments and should be attributed accordingly.