With Hedge Funds Circling Local Papers, How Many Can Escape as Nonprofits?
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Baltimore, Maryland at dusk. The Baltimore Sun is on the brink of becoming the latest nonprofit paper, if a wealthy donor’s purchase goes through.
Last April, the Washington-Baltimore News Guild, which represents workers at the Baltimore Sun, launched a campaign called Save Our Sun to return the paper to local ownership under a nonprofit model.
At the time, the hedge fund Alden Global Capital was the largest shareholder in the Sun’s owner, Tribune Publishing. Alden was poised to take over Tribune, and with it, the Sun, the Chicago Tribune and other outlets. Save Our Sun co-founder Ted Venetoulis called the paper’s campaign “aspirational”—and for good reason. Few experts thought Tribune Publishing would sell the Sun and depress its sale price, with Alden poised to swoop in like, well, a vulture. As expected, Tribune Publishing held on to the outlet.
But now, Venetoulis’s aspiration seems within reach. On February 16, Tribune Publishing agreed to be acquired by Alden for $630 million. As part of the deal, Alden signed a non-binding agreement to sell the Baltimore Sun Media Group, which includes the Sun and smaller regional outlets like Capital Gazette, to the Sunlight for All Institute, a nonprofit formed by Stewart Bainum Jr., philanthropist and chairman of Choice Hotels International, a Rockville, Maryland-based chain.
The deal, reported by the Baltimore Sun’s Christopher Dinsmore, still needs the approval of Tribune shareholders, particularly the Los Angeles Times and San Diego Union-Tribune owner Patrick Soon-Shiong, who owns enough stock that he alone could block the deal.
It’s a fascinating development. Against all odds, there’s a chance the Sun will live on, free from a hedge fund overlord known for bleeding local outlets dry. “It’s not like the issues of the journalism industry will be fixed because of this,” Capital Gazette reporter Danielle Ohl told the Baltimore Fishbowl. “But man, is it going to be hopefully a lot easier to do when you know the revenue that you’re generating is actually going back into the paper itself.”
Other Tribune outlets subsumed into Alden’s orbit won’t be as fortunate. “It looks like one Tribune publication, the Baltimore Sun, has been acquired by a public charity and will be spared from Alden’s clutches,” said Save Journalism Project co-founder Laura Bassett in an email to IP. “But not every community has such a nonprofit, even though every community needs its local news outlet.”
“A major opening”
Interest in the for-profit-to-nonprofit transition began to gain traction in 2016 when H.F. Lenfest, the owner of the Philadelphia Inquirer, the Philadelphia Daily News and Philly.com, donated the publications to the newly formed Lenfest Institute for Journalism. (Lenfest passed away in August of 2018.)
In 2019, the Knight Foundation published a report laying out a menu of philanthropic options for profit-making newspapers. The same year, the IRS signed off on the Salt Lake Tribune’s request to become a nonprofit. The decision, wrote NeimanLab’s Christine Schmidt, created “a major opening for other newspapers who might find nonprofit status a more appealing alternative than selling or closing down.”
Journalists sought to capitalize on the opening. In December of 2019, Mary Schmich, a columnist at the Chicago Tribune, implored a civic-minded patron to buy the Tribune and save the paper—and the city—from an anticipated Alden takeover. “This is a once-in-a-lifetime chance to make your mark on Chicago history, to make yourself rich in honor, to be—no exaggeration—a hero,” she wrote. Of course, we now know that she received no takers, as Alden is now poised to take over the paper.
Why these deals fall through (but this one didn’t)
It’s hard to say why someone like Kenneth Griffin or even a funder like the MacArthur Foundation passed on purchasing the Chicago Tribune. But there are plenty of potential reasons.
For example, funders don’t want to assume the outlet’s liabilities. “It is worth noting that a significant challenge for many for-profit news companies revolved around pensions,” reads Knight’s primer on the nonprofit transition. “Resolution of pension liabilities is complicated and highly specific to the circumstances surrounding individual companies.”
The Miami Herald is another outlet facing an existential crisis. It is one of the 29 papers owned by the McClatchy Company, which filed for Chapter 11 bankruptcy in February 2020. At the time, analysts expected McClatchy would eventually be acquired by one of its largest creditors, the hedge fund Chatham Asset Management.
Just as in Chicago, South Florida’s journalists pleaded for a local foundation or billionaire to ride to the rescue. “The Knight Foundation should step up and invest in the chain that made it one of the wealthiest foundations in the country,” argued Miami’s Community News publisher Grant Miller.
However, as The Capitolist’s Brian Burgess pointed out, the sale of the Herald would ask the new buyer “to enter into a bargain where they’ll pay the pensions of long-retired Miami Herald staffers, as well as the current salaries of the existing staff, in exchange for news stories that cost far more to produce than what the competition is paying.”
Miami’s philanthropists took a pass. In July 2020, Chatham Asset Management won the auction to buy McClatchy for $312 million.
Of course, even if a philanthropic savior were to swoop in, they would still need the hedge fund to agree to sell the outlets. It might seem like a win-win, but current owners likely don’t see it that way. “The whole point of being a chain is to take advantage of scale economies,” wrote Dean Miller, editor of the Seattle Times’ Save the Free Press initiative. “Reduce scale, and you reduce the economies that shareholders love.”
It also appears as if Bainum was one of the few philanthropists that expressed interest in Tribune properties. “Despite all the talk about saving the papers and community interest, no one stepped up” with an offer to buy the Chicago Tribune, Mason Slaine, a former media executive who owns roughly 8% of Tribune Publishing, told the paper. “So what happens is that Alden gets it. That’s where we’re at.”
It appears that Stewart Bainum Jr. was not only the lone philanthropist who stepped up; apparently, he also made the involved parties an offer they couldn’t refuse.
The heightened appeal of the nonprofit model
Last July, while looking at the Sun’s efforts to find a philanthropic fairy godmother, I wondered if the pandemic, which severed outlets’ remaining ties to print advertising dollars, would compel more for-profit outlets to transition to a nonprofit model.
Seven months later, the results are in. In 2020, six news organizations converted from for-profit to nonprofit news organizations, Jonathan Kealing, chief networking officer of the Institute for Nonprofit News (INN), told Crain’s Chicago Business.
Six outlets may not seem like a pandemic-induced stampede to the nonprofit promised land. However, that’s a big jump from 2019, when only two outlets made the switch. Nor do these figures capture lengthy IRS application processes that may be in the works. In late January, a small chain of 14 weekly papers in north-central New Jersey announced they would be converting to nonprofit ownership.
INN’s Kealing told Crain’s that he anticipates more for-profits grappling with the financial fallout of COVID-19 will consider the nonprofit route. “When things start to bounce back, and things are just a little more stable, organizations that may have survived, but barely, will look for those other paths.”
Don’t pop the champagne
Kealing’s prediction requires some nuance. Namely, not all for-profit newsrooms are equally hardwired for the transition. The issue boils down to ownership. The Philadelphia Inquirer and the Salt Lake Tribune were both controlled by a single individual or family with wealth outside of the industry.
Similarly, the outlets under Growing Community Media, a nonprofit that now owns four community papers in the Chicago area, were “independently owned or closely held” before the transition, Publisher Dan Haley told me.
Leaders at these kinds of outlets can choose the nonprofit route without wrangling with shareholders or hedge funds that have a controlling stake in the business. As such, Haley said he isn’t “expecting a large group of weeklies under corporate ownership to make this transition. And hedge funds buying the regional dailies obviously have no interest in this path. They are just running the margins up as they take local journalism down.”
To his point, Alden may have agreed to cut the Sun loose, but its shareholders’ willingness to shed highly scaled assets has its limits. Alden owns about 200 publications through an operating company known as MediaNews Group. Could its scaled model withstand the loss of five outlets? Maybe. Would it give up, say, 15? Unlikely.
A (very faint) silver lining
There are many examples in recent history of wealthy buyers swooping in to salvage a beloved newspaper. Sometimes they work out, but often, they don’t. Just look at the case of Patrick Soon-Shiong, the man with the power to nix the entire Tribune-Alden-Sun deal. The pharma billionaire bought the Los Angeles Times in 2018, but “has since grown dissatisfied with the news organization’s slow expansion of its digital audience and its substantial losses,” according to the Wall Street Journal.
Stewart Bainum Jr., on the other hand, seems to have no such qualms about taking over the Tribune-owned Baltimore Sun. He served in the Maryland General Assembly, first as a delegate from 1979 to 1982, then as a senator from 1983 to 1986. According to Blue Tent, he made his money first when he took over his father’s nursing home business, Manor Care, then ventured out on his own in the hotel industry.
Save Our Sun’s Venetoulis told the Sun that Bainum’s bid is not affiliated with the campaign. “Stewart has stepped up to do this,” Venetoulis said. “He’s just a remarkable person, a civic activist who just wants to help the community... It’s great to have this coming to fruition, and you couldn’t have a better person for the city, and really, the whole state, to be doing this.”
So will the deal go through? Probably. “I would bet that getting out with a good return on his investment will be Soon-Shiong’s main or sole objective,” said Poynter’s Edmonds, who predicts that nearly all Tribune properties will ultimately join Alden’s MediaNews Group family later this year. “Then look for Alden to run its new conquests the same way it has its old ones,” he wrote. In other words, even if the Baltimore Sun has a bright future, the news is not good for most dailies involved.
“Alden has a history of running newspapers into the ground,” said Jon Schleuss, president of the NewsGuild-Communication Workers of America, whose local chapters represent newsroom employees in Chicago, Baltimore, Hartford, Orlando and other cities. “This isn’t good for workers, the company, shareholders or the communities.”
Schleuss did, however, celebrate Bainum’s effort to return the Baltimore Sun to local ownership. “We need more folks to step up and truly invest in truly local news that’s accountable to our communities,” he said.
