With The Gazette in all probability on the sales block, the natural question that follows is, what’s it worth? The old gray lady of Prospect Street ain’t what she used to be. Here is a breakdown of the factors any buyer would consider, based on hard numbers reviewed by the Business Journal:
The Gazette’s newsroom, advertising sales staff, marketing, circulation and presses are all housed in its building at 30 S. Prospect. Built in 1962, the 129,630-square-foot building is assessed at $3,769,017, or $29 per square foot.
How good an estimate is that?
“That may be the replacement cost,” said veteran real estate broker Tim Leigh, “but that location is really marginal.
“Any buyer would have to retrofit the building extensively, and that’s the real cost. In practical terms, the building has a negative value. If they gave it away, any buyer would immediately acquire enormous liabilities.”
What about the presses, which still function well enough to print the core newspaper?
Although periodically updated, much of the equipment is more than 25 years old, older and less efficient than presses at papers such as the Pueblo Chieftain and Denver Post.
The Gazette’s print circulation has declined substantially since the 1990s, despite robust population growth in its service area. In 1996, the paper had more than 100,000 readers, and market penetration of 58 percent. Today, The Audit Bureau of Circulations says the paper has 77,000 daily readers and 89,000 on Sunday — a figure that includes as many as 20,000 online subscribers. Market penetration may be below 30 percent for the print iteration.
As revenue has declined, successive publishers have cut back editorial staff. The Gazette has shed at least 60 reporters, editors and support staff in the last decade, leaving about 75 news staffers. This has severely impacted the daily’s once-comprehensive coverage of the region. The paper has shrunk, both in dimensions and in page count.
Looking ahead, if print continues to diminish, the newsrooms will undoubtedly shrink correspondingly. Even slimmed-down, the Gazette’s newsroom isn’t cheap. Payroll, at about $5.4 million in 2008, may now be closer to $3.8 million.
Gazette revenue has fallen steadily during the last few years, although it’s not clear by how much. As recently as 2008, the paper forecast revenue of approximately $62 million and expenses of $50 million.
Since then, advertising revenue has cratered, declining from a 2006 peak of $53.97 million to an estimate of less than $32 million in 2010. Given the high fixed expenses which characterize daily newspaper operations, the paper’s profit margin may be as low as 5 percent (meaning a profit of perhaps $1.5 million this year), a far cry from the 20 percent margins the paper once enjoyed.
While advertising revenue continues to decline for dailies throughout the country, the rate of decline has substantially lessened in 2010, perhaps indicating that a turnaround is in sight.
While many newspapers and media companies have changed hands or gone through bankruptcy in the last three years, transactions today are tougher to pull off.
In 2009, the Boston Globe, which the New York Times Co. had purchased for $1.1 billion in 1993, found no takers at an asking price of less than $100 million. The two Philadelphia dailies, the Inquirer and the Dally News, were sold out of bankruptcy in September for $139 million. In 2006, the papers had sold to a local investment group for $515 million.
There have been no recent sales of properties comparable to The Gazette. So sparse is the market, according to a Nov. 11 report on the newspaper industry by Zacks Investment Research, that publishers are continuing to slash costs rather than undertake asset sales, which “even at trough valuations, have proven to be a less viable option in the midst of tight credit markets.”
Cribb-Green, a national media broker that has sold 18 newspaper properties since 2008, says the average sales multiple in newspaper deals since 2009 has been 6.05.
That multiple suggests a Gazette sale price of about $9.3 million.
The Gazette was acquired by Freedom Newspapers, later Freedom Communications, from local owners in 1946. Freedom, which grew to include more than 100 media properties throughout the United States, remained under family ownership until 2004, when the feuding descendants of founder R.C. Hoiles consented to a partial buyout.
The buyout was triggered by Colorado Springs resident Tim Hoiles, who owned 8.6 percent of the company stock, and wanted out. Dissatisfied with the price offered him by fellow family members, Hoiles forced a deal which enabled him and other dissident family members to cash out based on an overall company valuation of $1.65 billion. Hoiles collected $142 million for his stake.
Burdened with hundreds of millions in new debt as a result of the transaction, Freedom filed for bankruptcy on Sept. 1, 2009.
The company emerged from bankruptcy on May 1. Hoiles family members who had declined to sell their shares in 2004 received nothing. Senior lenders, led by JP Morgan Chase and Angelo Gordon Co., took control of the company.
Angelo Gordon, a distressed debt specialist, reportedly holds a controlling interest in the new Freedom. The firm also holds a substantial position in Tribune Media, which owns the Los Angeles Times, Chicago Tribune and a number of other media companies.