The Boston Globe’s sale to billionaire Red Sox owner John Henry wasn’t too surprising (though its announcement in the wee hours of Saturday was). As weekend turns to week, the move still seems to make a lot of sense. Here are seven thoughts on why and what may be next for the Globe.
1.) It’s a sweet deal for Henry. The Globe’s real estate is close in value to the $70 million sales price he paid. And the New York Times Co. will retain the pension liabilities of the paper, CFO James Follo said in an earnings conference call Thursday.
So if the Globe were to fail as an ongoing business venture, the real estate is a great cushion to fall back on. The property is large and strategically located near an expanding college campus. Relocating, as many metro papers including Philadelphia’s have done, could be a sound cost-cutting move in the near-term. Or the value of the building and property would likely keep going up if the Globe stays.
This deal structure — taking the real estate, leaving the pension liability with the seller — has been standard in recent newspaper transactions — including Berkshire Hathaway’s acquisition of Media General’s newspapers and the Times Co.’s sale of its regional titles to Halifax.
2.) The remaining risk for Henry — and it’s a real one — is that advertising revenue deteriorates even more, digital replacement revenue is slow coming and the Globe slides into serious operating losses.
The Times Co. breaks out revenue for the Globe and its sister paper, the Worcester Telegram & Gazette, but not profitability. However, ad revenue this year is down nearly 10 percent through two quarters, substantially worse than the industry standard. Digital subscriptions do not come as close to making up the difference as they do at the New York Times.
The entire company showed a net profit of 4.2 percent in the second quarter. So I would estimate that the Globe is operating at break-even or a small loss (think: The Washington Post) and is likely to continue that pattern the next several years.
Henry is a Forbes 400 stalwart with wealth estimated by the magazine at $1.5 billion, so investments in keeping the paper strong and moving along with digital transformation are not likely to spend down his piggy bank.
3.) A downside for the Globe is competition — the Boston Herald takes circulation and advertising it might otherwise capture. Some other papers with civic-minded ownership groups of wealthy locals (Philadelphia, San Diego) do not have that disadvantage.
Under Times ownership, the Globe extracted big concessions from its unions in an earlier financial crisis, so labor costs and unrest may not be as big an ongoing problem as at the Philadelphia papers (where owners threatened closure seven months ago during tough bargaining).
Ownership of the Telegram & Gazette, which shares some Sunday sections and business operations with the Globe, is probably neither a big plus nor a drain financially.
4.) The Globe locked in to a high-quality, high-cost strategy several years ago. Its yearly subs are the highest priced among metros, and it is several years along trying to develop bostonglobe.com as a premium website with features a reader cannot find on the free boston.com site.
Editor Brian McGrory was a key player in making sure there was editorial-value added to justify the cost to readers during his time as metro editor several years ago. The Globe has also been proactive in developing a mobile news presence and other new ventures like a direct-marketing arm.
Henry may have other initiatives and new directions in mind, but I don’t see the Globe as a candidate for a quick pivot. So I would not be surprised to see the current team of McGrory and publisher Christopher Mayer stay in place.
5.) Wealthy locals have been part of the mix of newspaper buyers and potential buyers for some time now. In Los Angeles, real estate billionaire Eli Broad, entertainment mogul David Geffen and supermarket and private investment magnate Ron Burkle have all expressed interest over the years in restoring the Los Angeles Times to local ownership. Warren Buffett kicked off his newspaper buying spree with his hometown Omaha World Herald.
I have compared these moves to the pleasure for the very wealthy of buying a sport franchise — more fun than owning a bond and a high-visibility good deed for your community as well. In Henry, we now have one rich man doing both at once.
6.) I had thought the New York Times would be picking a winning bidder among several groups strictly on the basis price with no particular attention to what new owners might do with the paper. The Globe’s own account implied but did not say definitively that the disappointing $70 million bid was the highest. Beth Healy reported Monday that three groups claimed their bids had been higher.
I am left wondering whether the Times was influenced by the company’s experience working with Henry when it owned a minority stake in the Red Sox, confidence in his business acumen and perhaps queasiness with returning the Globe to the Taylor family from whom it bought the paper 20 years ago. All that could have tilted the balance in Henry’s favor.
7.) On the surface, this deal could not be more straightforward — $70 million cash. But tax benefits to either the buyer or seller are worth watching for when the transaction is completed in another 30 to 60 days,
Provisionally. let’s call the result a happy ending — or at least a happy juncture — in the Globe’s ownership/survival drama. The New York Times Co. has been a passive owner of late, preoccupied with the huge task or remaking its flagship franchise in the digital era.
The paper now gets a fresh start and an owner who can be presumed to be a builder rather than a cost-cutting, profit-harvesting liquidator. But the challenges tomorrow remain what they were yesterday — finding revenue alternatives and successful digital products as print advertising erodes, even more quickly in spread-out metropolitan areas like Boston than for the industry as a whole.