That Didn't Work Out So Well, Did It? | Bleader

Thursday, August 27, 2009

That Didn't Work Out So Well, Did It?

Posted By on 08.27.09 at 03:49 PM

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Life at the Reader was just wonderful for a long time. Lots of stories, lots of listings, lots of ads, lots of classifieds — plus memorable staff parties and a Christmas bonus that was roughly a month's salary.

But by 2006 the Reader was operating at a loss, and at the end of the year one of the founding owners, Tom Rehwaldt — long estranged from the others — filed a suit that accused them of, essentially, mismanaging the company in order to depress the value of his stock and punish him. Outraged by the suit, but finding themselves with little appetite for spending money to fight it in court as the business collapsed around them, the owners began thinking more seriously than they ever had before of getting out.

Ben Eason, CEO of Creative Loafing Inc., a chain of four alt weeklies in the south, got wind of the troubles among the board and moved in. In July of 2007 the owners got out from under the suit by selling Eason the Reader and Washington's City Paper. The announcement shocked this paper's staff more than it surprised it — though many of us had never heard of either Eason or his company.

It wasn't just the suit, the old owners told me. They'd been at it since 1971, and they were feeling old and tired and out of ideas. Eason was younger and fresher and sounded as if he had some.

What he actually had was $40 million in debt he couldn't manage. On Tuesday a bankruptcy judge in Tampa turned Creative Loafing over to Eason's primary creditor, Atalaya Capital Management of New York. And who knows what's ahead for the Reader now?

I called Mike Lenehan, a former editor of the Reader who owned a small piece of it, and asked for his thoughts.

"Maybe we should have been smarter, or less starry-eyed about it," he told me, "but we thought and hoped Eason would succeed. I don't think there would have been much sentiment to do [the deal] if we thought he'd turn out to be Ben Eason. Maybe we should have known better — but that's what we thought."

It's not as if the founding owners didn't care who bought the Reader, Lenehan said. "That was definitely part of the conversation — are these guys smart, do they know what they're doing, do they have an idea? Not that we understood what the right idea was supposed to be. If we did, we wouldn't have been in the position we were in."

Eason, as he negotiated the purchase of the Reader and City Paper, was being advised by his board that the deal was a terrible idea. That's a possibility that apparently didn't occur to the sellers. "It's like, I guess we thought -- he had the money so he could afford it," Lenehan said. "Whether he could operate a bunch of papers with that crushing debt — I wonder if a seller ever thinks of that. The way we looked at it, somebody who thinks and says they're smarter than us...and these New York investment guys think he can pull this off and lend him the money to do it...and at that moment we didn't feel tremendously intelligent — the trend lines were going down everywhere you looked — at some point you think, 'Maybe these guys have got a better idea.' And it was a conventional wisdom better idea, it was the better idea everyone was spouting at the time — Web first, and we'll make our money on the strength of Web advertising, and the paper may dwindle away but by the time it does we'll be strong on the Web and we'll do all these things to maximize our Web presence, and yadda yadda yadda."

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