The bankruptcy shoe finally dropped for the Minneapolis Star Tribune last night. It was the least surprising piece of Minnesota footwear since fur-lined boots . Since Avista stopped making debt payments and then conducted a three-act drama with their unions, last night’s filing was a certainty.
A lot of numbers are being tossed around so I will add mine. In the months prior to my well-planned retirement as Editor and Senior Vice-President in June of 2002 I think I remember that McClatchy wanted $136 million profit that year and Star Tribune management wanted to come up with $132 million. the years and the numbers have mixed together, but that is my memory. In the Star Tribune report on last night’s filing, long-time reporter Dave Phelps says that profit number was 115 million in 2004, 59 million in 2007 (when the sale from McClatchy to Avista was finalized) and is now 26 million. On the back of the envelope I have always figured, based on the multiple Avista paid, that earnings were about 80-85 million in 2006 which would have been the basis for the purchase.
The two key numbers in that discussion are 136 and 26. A major newspaper’s profit line dropped $110 million in 7 years! Importantly, according to David Brauer at MinnPost that $26 million does not include debt service. That’s like saying I am doing fine financially except I am not paying my mortgage, my car payment or my credit card bills. Remember too, the Star Tribune is not that unusual. The magnitude of that decline is heart-stopping. Most people believe this is an industry implosion none of us could have ever imagined. Well that’s not really true.
The Cowles family imagined it and after years of strong stewardship decided in 1997 the old saw about discretion and valor made a lot of sense to the family. Early in 1997 David Cox, then Cowles CEO, commissioned the major consulting firm Booz-Allen to analyze the future of classifieds. I would dearly love to have that report in front of me now, but I vividly remember sitting through the excruciating pounding my beloved business got that day. While I only remember the broad outlines of the report I remember enough to know that as seers the Booz-Allen people were almost mystical. They predicted the classified demise with a precision that today strikes me as awesome. At the time I thought they were a bunch of negative doomsayers. Unfortunately, they nailed it.
There were two available reactions. Mine, which was “nothing could be this bleepin’ bad!” In my defense, people like McClatchy’s Gary Pruitt and other newspaper buyers saw it my way. The other possible reaction was, “our entire net worth is tied up in this company and the risk is simply too great.” That was the Cowles family reaction and within months they announced they were going to research “strategic alternatives” The preferred ‘strategic alternative’ was the sale to McClatchy.
So many critics focus on the McClatchy purchase, but the focus really ought to be on the wisdom of that sale. I have seen very few folks acknowledge that the Cowles family was smart enough to seek advice, wise enough to heed that advice and then courageous enough to take decisive action.
When somebody tells you nobody saw this newspaper/classified implosion coming you tell them they’re flat wrong. Booz-Allen and the Cowles family did see it coming. They made the right call.