Wednesday, August 26, 2009

The Easoniad

Posted By on 08.26.09 at 11:47 AM

[You will have to forgive me for what may seem at this point like obsessive inside-baseball theorizing about what is, technically, history. But I think it's kind of an interesting point, especially since media and debt are important subjects to me and, I would argue, to you as well.]

In comments yesterday, my colleague Philip asked the following:

"The Reader and City Paper deal was a fine deal," he told me. "That was not the deal that did us in. The deal that did us in was having any degree of leverage . . . I had a reasonable-to-high degree of leverage in the City Paper-Reader deal."

Am I missing something, or is he saying the Reader deal didn't do CL in, except for the part where the Reader deal did CL in?

I dismissed this as the sort of impenetrably meaningless statement that you hear from, say, Mayor Daley as a way of changing the subject. But after thinking about it for a few hours, I think I understand what Ben Eason meant, and I think it also goes a long way towards explaining his surprising statement that "debt doesn't matter." Anyway, to revise and expand on my previous comment...

Here's Eason's full statement; it's important:

"'The Reader and City Paper deal was a fine deal,' he told me. 'That was not the deal that did us in. The deal that did us in was having any degree of leverage, and then having Craigslist and this economy. I had a reasonable-to-high degree of leverage in the City Paper-Reader deal and any leverage at all would have killed us.'"

"'The fact is,' he went on, 'the Reader's profitable because of the measures that we've taken. I had to do the hard things the old owners maybe knew in their heart of hearts they needed to do but just couldn't do. Creative Loafing with the Reader and City Paper is far stronger than Creative Loafing alone. Having all these entities together is why Atalaya and BIA are interested in putting their money in. It's not the deal that is the problem.'"

Parsing that:

1. CL was already leveraged, as my understanding goes, since some of the new debt (the $40 million taken on to make the purchase of the Reader & WCP) retired old debt.

2. Adding more leverage didn't kill CL if the perfect storm of existing leverage + the economic downturn + the flight of advertising from print + Craigslist would have killed it anyway.

3. The deal was smart because it made CL + the Reader/WCP a stronger asset; if the deal hadn't been struck, the assets would be worth less, or worthless, and thus in the current macro- and microeconomic situation buyers would have less interest in the properties as separate entities, especially if we are to assume they would have been "killed" anyway by the conditions mentioned above.

So I think I understand that - my favorite card game is Hearts, so I know the logic behind holding or passing bad cards, and shooting the moon when your cards are terrible. But what Eason is saying is actually much more interesting than that.

He's building a tragic hero narrative. Check it, here's Miner:

"'The question is, why didn't you sell in 2004 or 2005 or 2006? That's really the question [Eason said].'

"In other words, why didn't Eason, a man of acumen, see the wind building and the waves churning and get out before the perfect storm arrived, threatening to sink all of print journalism's boats?

"'And the answer is, "I'm an entrepreneur, I don't sell, I build," said Eason. 'Maybe I'd have sat on the beach a little bit longer and had a little more of whatever. But that's not who I am.'"

Parsing that:

1. Eason packages a smart deal for the benefit of all involved except for, as we shall see, himself.

2. He chooses to proceed with the deal because of his entrepreneurial motive, which is his tragic flaw.

3. He is laid low by Fate, but he's left a legacy of a saleable asset. He's sort of like Aeneas - the fallout is the inevitable result of an inevitable mission.

Now, I disagree with his logic. I'm not a businessman - and I don't mean that facetiously, I'm really not - but I tend to think that high leverage binds your hands (think "16 Tons") and, generally speaking, is an engine of economic inequality, since it reduces working capital over the long term while enriching men who are in the business of selling debt.

But that's not how the world works, especially recently. And I think I understand it better now.

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