Eason keeps control
Creative Loafing’s seemingly endless dirge continues.
A bankruptcy judge ruled today against a motion by the company’s main creditor to take control from CEO Ben Eason. That means the battle for control between Eason and Atalaya Capital Management will continue through most of April in U.S. Bankruptcy Court in Tampa.
At the same time, Judge Caryl Delano fired a warning shot at Eason and his lawyers. The company’s plan to pull itself out of Chapter 11 protection is an “uphill battle,” she said, and Eason would be wise to seek mediation with Atalaya, a New York-based hedge fund that lent $31 million to Eason in 2007.
At least for now, however, mediation doesn’t appear to be in the cards. According to Tampa Creative Loafing’s Political Whore blog:
Although it was a strong win for the current CL management, Delano also struck a cautious tone, saying that she believed the company has “an uphill battle” ahead to have any reorganization plan confirmed by the credits since Atalaya is far and wide the biggest creditor and could choose to vote against any plan. Delano suggested mediation for the two sides, but after a 30-minute recess in which the two sides’ lawyers talked by telephone, the idea of having a mediator appointed was tabled for now, at least until April 20 when Creative Loafing reveals more details of its reorganization plan, including possible new investors.
As mentioned earlier, this isn’t entirely unexpected. Bankruptcy courts generally rule in favor of the debtor-operator (in this case, Eason) before the court gets a chance to rule on the company’s proposed plan. That means the company will continue to be saddled by bankruptcy costs for the time being.
Next chance to get out of this mess: April 20.
CL ruling today
Creative Loafing Inc. management, employees and creditors will find out shortly after 2 p.m. who will control — for the time being — the parent company of CL/Atlanta and five other weekly newspapers. That’s when Bankruptcy Court Judge Caryl Delano has scheduled an announcement of her decision on a motion by the main creditor, Atalaya Capital Management, to effectively take control of the company.
This is just one motion in CLI’s Chapter 11 bankruptcy case, so the larger battle for control will continue if the judge rules against Atalaya’s motion. Bankruptcy attorneys I’ve spoken to say it’s unusual for a “debtor-operator” (such as CLI’s current management) to loose control at this relatively early stage in the game.
If DeLano rules in favor of Atalya, the New York-based hedge fund promises to bolster operations.
If current CEO Ben Eason retains control, he says he’ll move forward with his “Digital Transformation Strategy,” which calls for continuing to shrink the papers. He’ll have to continue to use the company’s resources to battle for his interests in bankruptcy court.
(Beware, my bias: Eason fired me as part as Creative Loafing editor in Atlanta over cuts he wanted to make to Editorial Department.)
CL employees to judge: What about us?
I have a hard time figuring out whether Ben Eason and closest circle of advisers are dishonest, or just plain nuts. Or both.
The fate of the Eason family’s 37-year-old newspaper chain now lies in the hands of a bankruptcy judge. After three recent days of testimony in Tampa over the issue of Creative Loafing Inc.’s value, Judge Caryl Delano said last night that she’ll rule within a week in a conference call on a motion to, in effect, turn the company over to a New York City hedge fund. At issue is whether CLI has gained or lost value since CEO Eason took the company into Chapter 11 protection on Sept. 29.
If Delano rules that Eason’s continuing to run the company aground while in bankruptcy, she may allow Atalaya Capital of New York to take control. If she finds he’s turning the ship around, she could permit him to continue operating CLI — for now.
It’s hard to imagine how anyone could arrive at the conclusion that the company hasn’t lost value since September. Atalaya’s valuation expert — a Deloitte heavyweight — testified last week that CLI’s value dropped from $19 million on Sept. 29 to $11.4 million on Dec. 31. A home-boy valuation expert (Tampa’s Michael Ward Mard) testified on Eason’s behalf Tuesday that CLI had nearly doubled in value since the bankruptcy filing (from $7 million in September to $13 million last month).
Home Boy’s valuation is difficult to square with the incredibly shrinking ad lineage at CLI’s seven six newspapers. The Atlanta operation, for example, which until recently had been the company’s cash cow, published a 56-page paper in February and has been running pretty consistently over the last three months at 64 pages. Page counts like that hadn’t been seen in Atlanta since the 1980s. In September, in fact, CL/Atl was publishing around 100 pages. Meanwhile, the Atlanta paper’s main competitor has been increasing its ad lineage — something it wasn’t doing before the CLI bankruptcy.
My understanding is that other newspapers in the chain have suffered similar shrinkage since the filing, though not quite as dramatically. Here’s an easy way to settle the debate: Just put a stack next to each other of all the papers from February of last year, September, December and this February. It will look like a stairway to the basement.
Never mind reality, though. Mard’s argument essentially is that the promise of online business growth — based on Eason’s most recent epiphany, which he calls the “Digital Transformation Strategy” — makes the company more valuable. A comment on Wayne Garcia’s latest post on the bankruptcy drama raises an important counterpoint, however. Eason has been cutting web personnel. As “Loaf Employee Says,” uhm, says:
Since the bankruptcy filing, Eason has gutted the tech personnel who handle/design the company’s websites. We [now] have a web staff of two. That’s two employees to design web pages, shoot and edit video, and maintain the blogs as well as trouble shoot the problems with our site that regularly come up.
I wonder if Eason was questioned about that. He claims the future of Creative Loafing is on the web. Yet after the bankruptcy filing he’s lost three web employees–having fired two of them. These are just the ones I know about.
Oh yeah, they were both fired on the day of our staff X-Mas party. Classy.
Here’s where I disclose (in case you haven’t noticed) that my perspective on this drama isn’t exactly objective. Eason fired me as the Atlanta newspaper’s longtime editor in November after I urged him to spread his cuts more evenly — to, for a change, include his Corporate and administrative staffs in his cuts and to temper his plans to deepen reductions in front-line departments, such as Editorial and Sales. I should have spoken up for the Online Department as well, but had no idea that it, too, would be cut before Ben cut his bureaucracy.
The notion that Eason’s latest eccentric vision — the “Digital Transformation Strategy” — should be considered a silver bullet toward success serves as a kind of deja vu for CL employees. It’s consistent with the regrettable approach that’s gotten the company where it is today. Grand visions — replete with bells and whistles, whirly-gigs, Rube Goldberg machines, and consultants (Lord knows, plenty of consultants) — are favored over hard-headed, real-world, in-the-trenches work and over the organizational support that journalists, technologists and salespeople need to keep a media company growing in today’s tough environment.
As long as Eason controls the company, there is no reason to believe this dysfunction will end. Even if you don’t believe that, the prospect of Eason continuing to control the company is worrisome: If Delano rules in Eason’s favor, Atalaya will not go away. CLI will continue to be hampered by the expense of the bankruptcy attorneys and financial consultants it will need to ward off the creditor’s push to gain control. In this business environment, a small firm with weak leadership can’t afford such a financial distraction. It’s a recipe for cycling downward.
The only silver lining is that Eason’s mis-leadership must now be focused on the bankruptcy case rather than on constantly amending his vision and placing unreasonable expectations on his employees.
I’m told that the Eason family has come together to show support for the business that Ben’s mom, Debby, founded in 1972. They sit in court behind Ben and his attorney, surely (and understandably) worried that the family sits on the brink of losing her legacy and the family fortune. It’s good that they’re supporting each other through this. It really is.
There are other people, however, who are unable to view the hearings or to speak openly about the company’s future. As blog posts and comments from Chicago to Tampa testify, the vast bulk of those people would sit on the Atalaya side of the courtroom. They are the CLI employees whose sweat, intelligence and creativity really built each of the chain’s respective papers. Do their life’s work and their financial security — so long under-appreciated by Ben and his revolving-door of executives — not matter at least as much as the aspirations of one family?
Not easy on Eason
Creative Loafing Inc. CEO Ben Eason had a rough afternoon on the stand yesterday in U.S. Bankruptcy Court, according to an account published by one of his own reporters early this morning.
After testifying that he’s led a transformation over the last few months to a web-first-print-second company (as predicted here), Eason had to endure a “withering cross-examination” by Tyler Brown, attorney for CLI’s lead creditor, Atalaya Capital Management, which is trying to gain control of the alt-weekly newspaper publisher. According to CL/Tampa’s Wayne Garcia:
Brown meticulously walked Eason through his own financials, getting Eason to begrudgingly acknowledge that online revenues have dropped month-over-month since CL went into bankruptcy court on Sept. 29, 2008. (Eason countered that those drops are explained by differently sized months, some with four weeks and others with five weeks, as well as seasonality. On a month vs. previous year’s month basis, online advertising is significantly up, he testified. “I believe that the trends that we put out there are positive.”)
Brown asked Eason about the $3.5 million-$4 million in cuts made to the current year’s budget, which resulted in about 50 layoffs, 40 percent of which came in editorial news departments. Brown’s questions insinuated that the cuts actually hurt the chain and profits and forced Eason to admit that the chain’s “preeminent position” in its cities is actually sliding, or at least has slid in Atlanta, where the paper was founded. A Media Audit in November showed the rival Sunday Paper having a higher readership than the Atlanta flagship paper, a fact that it took 3-4 attempts by Brown to get Eason to agree.
The cross-exam was contentious, with Eason making a snide remark aimed at Brown at one point and disagreeing strongly with the dire portrayal of the company by Atalaya. His most common answers were “That’s not true” and that’s “not necessarily the case.” The cross went after 6:30 p.m., after which rebuttal testimony was expected.
As disclosed previously on this blog, I was fired by Eason last fall as CL/Atlanta’s editor after protesting the heavy tilt toward cutting editorial staff and other front-line departments. Ironically, I think Eason understands part of the long-term picture confronting the company quite well: Alt-weeklies are well positioned to thrive on the web, and they have no choice but to make a radical transition.
But transformations of this kind are all about timing and execution, both of which have gotten Eason into trouble in the past and again this time. For one thing, it now appears that he panicked last year by trying to change everything all at once without having the competency in place to make the necessary changes effectively. For another, he underestimated how important it is to continue to do the basics — for example, to provide the resources to produce great content, to pay attention to whether the paper is actually getting distributed, and to have leaders in place who understand the local market. In my experience, Ben was disturbingly dismissive of such fundamentals, preferring to keep his mind in the abstract world of long-term trends and grand ideas.
CL reality show: next week!
A friend (and former Loaf employee) writes:
I’m so confused…So we won’t know anything about what will happen to CL until next week? I’m starting to feel like I’m missing episodes of a reality show.
That’s right my secret admirer. CL/Tampa’s Wayne Garcia reported last night that Ben Eason was to testify in Bankruptcy Court today:
The hearing will then be continued until Tuesday of the following week to hear from the company’s CFO and a Tampa Bay business valuation expert, after which Judge Caryl E. Delano (at some point) will rule on Atalaya’s motion to gain control of the company. Atalaya is owed $31 million from its f[i]nancing of CL’s 2007 purchase of the Chicago Reader and Washington City Paper.
Those of us weren’t in the courtroom, don’t know what happened today yet. I’m hoping that Wayne will file somethng later about Ben’s day on the stand. Will link here if I see it.
NON-UPDATE: I haven’t gotten any reports of what happened in court today. Will try to find out tomorrow and if so will pass it on.
Is smaller bigger at CL?
So, let’s say the flagship weekly of your newspaper company lost around 30 percent of its print advertising in three months, suffered similar results at its other papers, threw its scarce cash at bankruptcy lawyers and financial advisers, and was spanked with unceasingly bad publicity during that time. Oh, yeah: You’re also in the midst of the worst recession in at least 27 years.
How could you come up with an argument that the company actually gained value over that time?
That’s the challenge facing Creative Loafing Inc. CEO Ben Eason in U.S. Bankruptcy Court in Tampa this afternoon.
Eason fired me as CL/Atlanta’s editor in November for arguing that he should cut administrative costs a little before hatcheting editorial and sales yet again, so you can take what I write about this subject with a grain of salt. But, honestly, my interest in writing about this isn’t vengeance: My heart is breaking over what’s happening to CL, and I desperately want to see the media organization I helped build survive — and thrive.
Eason took company into Chapter 11 bankruptcy protection on Sept. 29, two days before his main lender might have held him in default over taken control of the company from him for defaulting on a $30 million loan. At the time, CL/Atlanta was running around 100 pages. By the week I was canned, it had dropped to 80 or 88 pages. Then, each week in December, it ran either 64 or 72 pages.
Things appear to have gotten worse since December. I peak into the CL box with mixed feelings each Tuesday night to find a disturbingly thin publication. In January — always a slow month — the Atlanta paper was regularly down to 64 pages. But in February, when ad lineage usually ramps up, the paper got down to 56 pages — a size I’m told it hasn’t been since the mid-1980s. I think it’s been above 64 pages only once this year. Who would’ve guessed that CL — an established brand with award-winning coverage — would so suddenly fall that it now produces a smaller paper each week than the upstart Sunday Paper?
I’d be lying if I didn’t admit a sense of vindication — that Ben, with whom I disagreed so often over the eight years I worked for him, reaped what he sowed. But my more potent emotion is fear: A fear that something we that we grunts in Atlanta had built into a significant media organization (in spite of Ben’s misguidance, rather than thanks to it) was being driven into the ground.
Today’s Bankruptcy Court hearing isn’t about such grand issues as justice or, say, about the ideal that a newspaper belongs, in some sense, to its community as much as to its shareholders. The hearing is a bit more technical than that. It doesn’t even cover what’s happening on the ground right now. It stems from a November motion by Atalaya Capital, Creative Loafing’s $30-million creditor, requesting that the court give Atalaya control of the company — in part because the longer Eason controls it, the more CLI’s value drops. A couple of months ago, the judge scheduled this week’s hearing to determine whether the Creative Loafing Inc.’s value had dropped from the Sept. 29 bankruptcy filing through Dec. 31.
If the value did drop during that time, Atalaya would be able to back up its argument that CLI needs to be taken out of Eason’s hands for its very survival. If the value was low to start with and had risen since, Eason could claim he was righting the ship and should be given a chance to manage the company out of bankruptcy.
Not surprisingly, Atalaya’s expert argued yesterday that the company’s overall value dropped from $19 million to $11.4 million. Given the shrinking page-count of CLI’s newspapers (while other cities’ papers haven’t shrunk as dramatically as Atlanta’s has, they’ve declined pretty steeply as well) and the documents showing lower and lower revenue numbers that Ben’s gang has filed to the Bankruptcy Court, it seems likely that CLI would fetch less (if it were for sale) after three months of Chapter 11 than before.
So, how will Eason argue this afternoon that the company’s somehow gaining value? I suspect the trick will lie in trying to convince the Court not that he’s getting more revenue, but that he’s getting more revenue of the right kind. Specifically, he’ll claim that more revenue is coming from online ads. From the standpoint of a company’s valuation, the argument goes, money that comes from online ads promises more revenue for the future (because it’s likely to grow), while money that comes from print ads doesn’t raise the value as much (because you can expect that number to shrink over time).
There’s some validity to the argument. Current employees confirm that online audience in Atlanta is continuing to grow — just as it was growing during the months before I left (except for that last point, I’m not going to share in this article any information that I learned as editor in Atlanta). Whether the increased audience brings in enough revenue to offset Creative Loafing’s shrinking position in the print market is another question. For one thing, online ads are notoriously cheap, so the amount of traffic you’d need to cancel out disappearing print ad revenue is enormous.
Of course, it would be pretty easy for a print publisher to make it look as if he was getting more revenue from online than he really was getting. All he’d have to do is weight the revenue coming from clients who were buying both print and online ads, more heavily toward online. Let’s say the client was spending $1,000 on print and $100 on online. Change the way that money is booked to $800 for print and $300 for online. Voila! Your company is suddenly more valuable. Even if the advertiser was spending less money with you — say $700 print and $300 online — the valuation expert you hired to testify for you might claim the company’s value had risen.
I’m not saying that’s what Eason’s doing, mind you. The point is that the more I’ve watched this drama unfold, the more I am amazed that decisions are made by the way things look on spreadsheets and by narrow legalistic arguments rather than on what is going on in the real world. Maybe, that’s the way bankruptcy cases have to role. And maybe the consequence won’t end up jeopardizing the jobs of 240 or so people who still work for Creative Loafing Inc.
But it is pretty evident that Eason is caught in the cycle of doing more to impress the Bankruptcy Court than he is in doing what needs to be done to build the company’s future. Can you blame him? It’s not surprising, for example, that he made sure that a long-awaited Atlanta homepage redesign and Charlotte food blog went up this week — just before the hearing. (For the record, I’m in awe of what my former staff, as well as Atlanta Online Producer Alejandro Leal, have been able to achieve in the midst of the company’s mess!)
Still the hard facts on the ground are that Creative Loafing has been shrinking for sometime, and at least physically right now, this once-promising media institution appears to be taking a nosedive. All you have to do is pick up the paper and weight it in your hands to figure that out. I worry, though, that what happens in the world of financiers and courtrooms reflects the reality of Creative Loafing about as well as mortgage-based securities reflected the reality of real estate.
The question is: Will the the Bankruptcy Court figure out what’s going on on the ground before it’s too late?
Bulkley not new to CL
Turns out that the financial services company that Creative Loafing Inc.’s lead creditor plans to turn to if it gains control of the troubled alt-weekly company has had some dealings with CL before: Bulkley Capital shepherded the 2007 sale of the Chicago Reader and the Washington City Paper to Creative Loafing Inc.
According to Bulkley’s website:
Bulkley Capital was called upon by two of the country’s leading alternative weekly newspapers, the Chicago Reader and the Washington City Paper, to represent them through final negotiations and due diligence in their sale to Creative Loafing, Inc., owner of alternative weeklies in Atlanta, Tampa, Sarasota and Charlotte.
Tom Yoder, one of the owner of the Reader and the City Paper, is featured in a testimonial on the Bulkley website lauding the company for its discrete handling of the deal: “Bulkley Capital was extremely useful in advising us, keeping the deal on track and sheperding it through to a sale. It was completely top-secret. And we ended up astonished that word never got out – astonished and delighted.”
The 2007 transaction didn’t turn out to be as good for Creative Loafing as it was for the 11 former owners of the Reader and the City Paper. CLI CEO Ben Eason borrowed $40 million to buy the two altweeklies and to retire a existing $16 million debt. On Sept. 29, 2008, when he was about to be held in default because he couldn’t make scheduled payments, Eason took the company into Chapter 11 bankruptcy protection. For the time being, that’s prevented Atalaya Capital, an investment fund, from taking control.
Today, in a hearing that could determine whether Eason must finally turn the company over to Atalaya, an Atalaya official announced that the investement fund had contracted with Bulkley Capital to help manage CLI. At the same time, as its own description of the Reader/City Paper deal makes clear, Bulkley has a track record of arranging sales:
The owners were seeking a buyer with a proven track record and a clear plan for taking the papers to the next level, while maintaining the strong culture and commitment to quality they had established for their readers and employees. Bulkley Capital worked alongside the shareholders to evaluate the buyer’s operations and plans for integration. Despite a challenging environment in the publishing industry, which has seen increased competition and a decline in readership and advertisers, Bulkley Capital succeeded in negotiating and consummating a complex transaction that achieved the economic and structural goals of the selling shareholders, including separate treatment of and added value for the real estate holdings.
The usual disclosure: I’m the former editor of Creative Loafing/Atlanta. Eason fired me in November after I suggested that he cut his corporate and administrative expenses before continuing to cut Sales and Editorial.
Atalaya: Keep CL alive
(See update to this this story here.)
The investment fund that is the main creditor of Creative Loafing Inc. would keep its six papers going and pump more resources into them than current management has been willing to spend, the fund’s media specialist testified today in U.S. Bankruptcy Court today. But only if CEO Ben Eason and the rest of the team that got Creative Loafing into its bankruptcy mess were forced out.
From CL/Tampa’s Wayne Garcia:
Atalaya partner Michael Bogdan testified that the firm has hired another investment banking firm with media experience, Bulkley Capital of Dallas, Texas (with an office in Atlanta, the home of CL’s largest newspaper) to advise it and provide “management assistance” in running the CL papers if it is successful in court today.
… Bogdan said his investment firm would be willing to spend more money to increase revenues at the newspaper chain, but only if it can displace the current management and ownership. He said Bulkley is familiar with alt-papers and advised the Chicago-DC paper owners in their 2007 sale to CL. Bogdan said Atalaya would seek to publish “a quality publication” in order to maximize its investment. He also said the lender is concered about the CL workers. “We’re concerned with the morale of the employees,” a fact Bogdan said he gleaned from “reading in blogs.” Federal Bankruptcy Judge Caryl E. Delano disallowed the blog-related testimony after an objection from CL’s attorney, David Jennis.
Bulkley sounds as if he’s set up to help manage and sell media companies rather than to shut them down. This undermines the public claims of CLI CEO Ben Eason that Atalaya would shutter the papers if it wrested control from him.
In case you didn’t know, Eason fired me in November for urging him to cut his administrative staff a wee bit before continuing to axe Sales and Editorial. So, consider my reporting on this with that in mind.
Still, facts are facts: Eason’s own Bankruptcy filings show that he’s cut both Sales and Edit, while he’s failed to cut the General & Administrative budget that includes his salary and those of the people closest to him. The result has been disastrous, particularly in Atlanta, where the print product is now regularly smaller than the upstart Sunday Paper. And now Eason’s claim that Atalaya would shut down the papers — rather than try to get its investment back by operating it or selling it — sounds even less credible.
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