The New Sport Of Billionaires

Moguls are drawn to newspapers like moths to a flame

These are dangerous times for the tattered local newspaper. The moguls are descending.

Jack Welch and The Boston Globe; David Geffen et al in Los Angeles; potential suitors for the Baltimore Sun, the Hartford Courant, and Newsday; former AIG (AIG ) Chairman Hank Greenberg circling The New York Times Co. (NYT ), which has a dual-stock structure designed precisely to ward off people like Hank Greenberg. This far into the mogul boomlet, exactly one local business biggie has trotted off with a newspaper. (That would be Brian Tierney, leader of a local consortium that bought Philadelphia's two dailies, and who may be morphing from heroic exemplar to cautionary tale. But more on that later.) If there is one clear lesson, it's this: There is no easier way for a rich dude to get his name in the paper than to announce he wants to buy it. Actually operating the thing—well, that's another story. What do wannabe barons need to know that they don't already know? "Everything," says Mort Zuckerman, who bought New York's Daily News in 1993. A primary misconception among those with healthy egos and scads of cash is that their smarts are scalable to anything. As one Wall Streeter cracks, newspapers' newest suitors are billionaires trying to become millionaires.

YOU CAN'T PLAUSIBLY CLAIM that newspapers don't need well-heeled outsiders or that their top managers have been doing just fine. With few exceptions, they've done terribly. The industry has yet to halt the migration of ads and readers. In an age when advertisers clamor for more and better information on customers, newspapers have done a remarkably poor job of gathering demographic data on their readers. (Tierney, admirably, says he's determined to fix this.) Newspapers are another industry that proves the downside of being run by a clubby group of insiders. But there is at least one key reason why outsiders should think twice about coming in to shake things up. Unlike a baseball team—speaking of an industry run by clubby insiders—the value of a newspaper won't increase as financial indicators tank. And the pool of greater fools is drying up.

Six months after his purchase, Tierney is furiously chasing steepening revenue declines with expense cuts—necessary, he has said, to ensure the paper can make its debt payments. As noted, Tierney is saying smart things about what newspapers could do to thrive. But he also might not need to cut so deeply had he not spent, and borrowed, so much for the papers in the first place. Most papers are monopolies with still-sizable cash flow, so it's unlikely suitors will be able to pull a Zuckerman and get a major daily for cheap—as he did when he snatched the Daily News for $36.3 million, or about 7% of what Tierney paid in Philly. That low price undoubtedly made the tougher parts of the job, like dealing with unions, go down easier. (Captains of industry do need hobbies, but you'd think they could find one that isn't staffed with unionized employees.)

The road that Zuckerman and the News have traveled has not been easy, but the marriage has remained solid. This is more than you can say for two former owners of the New York Post, which in the '90s was briefly in the portfolios of Steve Hoffenberg and then Abe Hirschfeld. Both stints ended quickly, and Hoffenberg and Hirschfeld ended up in prison—though not before each started up another short-lived newspaper after leaving the Post. The dream dies hard. Ask the retired banker Joe Allbritton. He once owned the now-defunct Washington Star. Today his son is at work building out a D.C.-based mini-media empire including—you guessed it—a newspaper, one covering Capitol Hill. Evidently, when it comes to newspapers, the mania gets passed down to the sons, and not even they know when to say when.

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By Jon Fine

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