Saturday, July 28, 2012

Bad Karma: How Romney's Bain Capital Worked its Magic on Clear Channel Communications

 by Nomad

In an amazing twist, Mitt Romney's former hedge fund management may be the thing that kills off a major supply of hate on the radio.

Splashing Cash

Just saw this good news article about the slow inevitable sinking of Rush Limbaugh and the perfect storm mounting against right-wing hate radio. As you probably have heard, the campaign against Limbaugh has been effective at getting big name corporations from providing advertising revenue for the promoters of controversial radio show host.

According to the article,
(A)nother threat to Rush Limbaugh, Sean Hannity, Glenn Beck, Michael Savage, et al, looms on the horizon, and comes from a very different direction: vulture capital.

None other than Mitt Romney's Bain Capital owns Clear Channel, which is the parent of the conservative talkers' syndicator, Premiere Networks. Clear Channel recently downsized, simultaneous with Bain Capital squeezing the company through a forced 2.2 billion dollar dividend. (This is one of the mechanisms by which Mitt Romney and friends have amassed their fortunes -- sucking cash out of troubled corporations, subsequently allowing some of them to go bankrupt.) Clear Channel was already 19.2 billion dollars in debt, and is facing a shareholder lawsuit related to loans between different Clear Channel entities that were used to cover the huge payout. In spite of crushing debt, Clear Channel is "splashing the cash" in "an attempt to rebrand itself as a hip digital music giant."
The move away from controversy cannot be very good news for the likes of Limbaugh. Hip is not really his thing. Not to worry too much; the devil takes care of his own (for the most part) and Rush is no exception. 

Just you can't blame a dog for barking, it's really missing the point to paint Bain as some kind of predator and Clear Channel as some species of victim. In fact, Bain Capital simply appears to be doing to Clear Channel what it has done to many other companies.
The New York Times gives us the general idea of how it worked:
As Bain’s founder, [Romney] established its business model, which is to wring the maximum efficiency from a company for the benefit of Bain’s investors, even if that means closing plants, shipping jobs to China, and laying off American workers. That’s how private equity often works, and Bain has done it many times before, sometimes to the benefit of a company’s workers, and sometimes to their detriment.
In Clear Channel's case, its careless waltz with Bain has been nothing short of a disaster. Lots of detriment all around but the surprising part is who actually benefited.

The Last Temptation of Clear Channel

Headquartered in San Antonio, Texas, Clear Channel Communications, Inc. was founded by Lowry Mays and Red McCombs in 1972. Its fortunes soared when, in 1992, Congress made it possible for media companies to acquire more than 2 stations in any given market. It was undeniably an empire-building relaxation of ownership rules. This trend was further enhanced in 1996 with the Telecommunications Act of 1996. This allowed companies to buy even more stations. 

In response to this modern day gold rush, Clear Channel went on a buying spree. It purchased more than 70 other media companies, plus individual stations. And by the next eight years, Clear Channel picked up over 1200 radio stations, 41 television stations in the US and became one of the nation's leading live entertainment companies. 

Testifying before the US Senate, Mays, not unexpectedly, supported the wholesale deregulation of the telecommunications sector. It had not hurt the public, he told the senators. The public? Perhaps not, but what about the public interest?
*    *    *    *
The Bain Capital connection to Clear Channel began back in 2008 Bain Capital LLC and Thomas H Lee Partners LLC purchased Clear Channel for $18 billion. The deal was announced in July of that year only a few months before the economic meltdown.

Indeed, only 15 days before, then-President Bush had reassured the business community and the nation saying, "I think the system is basically sound, I truly do." 
Then one day, out of the blue, the system was not sound at all and the entire house of cards collapsed leaving George Bush nothing else to say but "Adios, suckers!" 

Even without the collapse, some financial institutions had already expressed some serious doubts about the wisdom of the arrangement. Banks which reportedly included Citigroup, Deutsche Bank, Morgan Stanley, Credit Suisse, Royal Bank of Scotland and Wachovia, had initially committed to financing the debt but then became skittish when they looked more carefully into the fine print and backed out. 

Clear Channel and Bain were miffed to such a degree they sued the financial institutions for "tortious interference" and accused them of attempting to sabotage the deal. 

That lawsuit was eventually settled out of court, and, in what some might see as a fitting revenge, the banks relented and agreed to provide long-term financing to Clear Channel. 
In hindsight, the banks had good reasons for balking at the deal. According to an excellent article in Forbes on the merger:
In 2007, the year before the takeover, Clear Channel’s net worth was $8.3 billion. But to complete the deal in July 2008, Bain and Lee loaded up Clear Channel with debt. Each of the two put up $450 million for the deal with investors injecting another $2.1 billion. They assumed $5 billion in debt and paid $18 billion — borrowing $15 billion more.
Clear Channel’s liabilities exceed the value of its assets by $7.8 billion. Simply put, Clear Channel has a negative net worth of nearly $8 billion. And that is thanks mostly to its $20.3 billion in debt — about $15 billion of which was taken on to Clear Channel’s balance sheet to finance its acquisition by Bain and Lee.
Furthermore, some shareholders would later contest the way things were done. For example, early this year, an investor filed a lawsuit against Clear Channel Outdoor Holdings (CCO), an 89% owned subsidiary of Clear Channel which specializes in billboard advertising. In question was the unsecured $656 million loan that CCO Clear Channel made to its parent at very low rate of interest.

The Wall Street Journal explains more about the lawsuit:
“No rational third-party would have ever agreed to lend money on such terms,” says the suit, which was filed in the Delaware Court of Chancery.... “Not only could Outdoor earn twice as much interest on the loan if it charged [Clear Channel Communications] a commercially reasonably interest rate, but Outdoor faces a severe risk that the unsecured loan will never be paid back because [Clear Channel Communications] has been drowning under a massive debt load.”
This poor business decision had a domino effect. The questionable loan, says Forbes, so depleted CCO’s cash reserves and forced CCO to borrow a further $2 billion more to pay Bain Capital and Thomas Lee a so-called special dividend of $2.2 billion, or $6.08 cents a share.

Apparently the temptation that Bain Capital used to entice Clear Channel has proved disastrous. Most people would simply call that blinding greed.
The time to pay the piper is definitely on the horizon, and approaching fast. According to Marketwatch,
Clear Channel owes $2.8 billion due in 2014 and $12.2 billion due in 2016. The $1.1 billion "special dividend" going to Clear Channel will reduce the 2014 debt to $1.7 billion.
What a relief. Only a billion and a half.

The Big Mouth Gamble

In addition a high stakes gamble with banks, around the time of the Bain Capital merger, Clear Channel decided to gamble on one of its star performers, Rush Limbaugh. 

According to a July 3, 2008, New York Times article:
The A.M. radio host will be paid about $400 million to continue serving up his daily dose of conservative patter through 2016. His $50 million a year paycheck represents a raise of about $14.4 million a year over his current contract, which was paying him $285 million over eight years and was set to expire in 2009.

The deal amounts to a major bet by Clear Channel Communications and its syndication subsidiary, Premiere Radio Networks, that Mr. Limbaugh’s brand of conservative talk will prosper well into the next decade.
 At that time, John Hogan, the chief executive of Clear Channel Radio said,
“Broadcasters of Rush’s quality come along once in a lifetime. We’re privileged to continue our relationship which is unprecedented in the history of our industry.”
A year before that, Clear Channel syndicator Premiere Networks Inc also renewed a contract with Glenn Beck, another radio and TV host that has made a name for himself by being outrageous and offensive. 

That contract ended this year and despite Beck's recent decline in popularity, only last month Premiere Networks Inc signed a new $ 100 million deal over the next five years with Glenn Beck. In light of the Fox News decision to drop Beck's show and the ongoing boycott of his advertising sponsors, it is yet another gamble on a market whose demographics are clearly shrinking.
the audience for right-wing talk has been shrinking since 2009. In some urban markets, Limbaugh’s audience has dropped by as much as half over the past three years.
Sean Hannity, another of Premier Radio's radio show hosts, has also signed a long-term contract for similar wages. Altogether, that's a heap of money for a company seems to be in such a mess.

And there's no question that Hannity, Beck, and Limbaugh are coming out of this in a lot better shape than others involved with Clear Channel.

Not long after the merger with Bain Capital, Clear Channel and Premiere began eliminating jobs and laying off employees. In January 2009, it announced significant cutbacks, 1,850 staffers, or 9 percent of its workforce. A few months later, another round of layoff released 590 more employees, representing 2.7 percent of company's total workforce of 22,100. 

This trend continued in 2011 and 2012 with further layoffs. In the 2011 layoffs, the company spokesperson denied that it was related to budget concerns but rather to "new programming strategy." As of December 2011, the New York Times reported that the company had canned 2,500 people.
Clear Channel spokesperson Angel Aristone said in a statement: "We are constantly evaluating our organization and structure to make sure we are as well positioned as possible to continue to lead in the evolving marketplace. These decisions are never easy to make. Like every successful business, our strategy continues to evolve as we move forward as a company and that creates some new jobs, and unfortunately eliminates others."
For those ex-employees, it must be particularly galling to hear radio show comments from Rush Limbaugh, whose own wealth continues to climb.
For example, when he points his fingers at the liberals as the cause for the sorry state of the economy:
The vast, vast majority of problems we have in this country are directly traceable to liberals, Democrats. And I know that that sounds simplistic and it probably is not persuasive, but I'm sorry, I don't know how else to say it. I really don't. And it isn't complicated. It isn't complicated to explain why these things are happening. .. But these people had all the answers. Hope and change. Everything was going to be better now. They had miracles waiting to enact. Everything they have done has brought great damage to this economy under the guise of fixing it.
Or when he tells his audience that the reason unemployment will not play a significant role in this election is because, with government assistance, the poor and unemployed simply are not suffering enough.
Every Thursday I come here with these unemployment numbers and my instincts have been telling me — and I’ve been fighting my instincts — my instincts have been telling me that nobody cares, because it’s not resulting in that much pain, not nearly as much as it used to... The economy today is worse by factors that you can’t even quantify. And it’s accepted. It’s seemingly accepted, because the so-called victims of the unemployment circumstance in this country are not suffering as unemployed people in the past did. And not that I want them to. It’s not even about what I want. I’m just dealing with the reality here.
Most people would agree that, when it comes to both suffering and reality, Rush Limbaugh has had very little contact with either.

Flush Limbaugh?

On top of the management and budget problems at Clear Channel, there's also been a backlash against the kind of programming that's been its bread and butter for a decade. 

That boycott began in earnest after Limbaugh made remarks against Sandra Fluke- calling her a slut- because she had been scheduled to testify before Congress about federally-funded contraceptives.

Whether Clear Channel acknowledges it or not, that concerted boycott of Rush Limbaugh has had an effect- though exactly how much is debatable. Denying that the boycott is succeeding is proponents of the protest claim, merely a tactic to prevent advertisers from either stampeding or demanding new terms.

Yet there is one thing cannot be denied. Many advertisers do not wish to be associated with Limbaugh and the kind of message he propagates over the airwaves.

Just today, Jason Easley, writing for PoliticusUSA has reported that another three advertisers have come to their senses and said goodbye to Rush.
It is getting close to the point where soon Rush Limbaugh isn’t going to have any advertisers left at all. One of the great ironies of this boycott has been the fact that since Limbaugh can no longer sell all of his ad space he has been reduced to airing unpaid government sponsored public service announcements to fill his ad space.
No matter how many advertisers leave Rush Limbaugh keeps doubling down, but with the latest losses he is down to 24 national sponsors. The most well known of what’s left are Lifelock and Angie’s List. The Fortune 500 companies are gone, and they aren’t coming back. Since Limbaugh owns his program, the odds of the boycott taking him off the air are slim to none, but the talker has had to pay dearly for his remarks about Sandra Fluke.
Here's a memo from Premiere to traffic managers of its affiliated radio stations warning to use caution in scheduling ads.
"More than 350 different advertisers sponsor the programs and services provided to your station on a barter basis. Like advertisers that purchase commercials on your radio station from your sales staff, our sponsors communicate specific rotations, daypart preferences and advertising environments they prefer… They’ve specifically asked that you schedule their commercials in dayparts or programs free of content that you know are deemed to be offensive or controversial (for example, Mark Levin, Rush Limbaugh, Tom Leykis, Michael Savage, Glenn Beck, Sean Hannity). Those are defined as environments likely to stir negative sentiment from a very small percentage of the listening public.”
Calling it "very small percentage" is undoubtedly supposed to modify the impact of the advice. It's the calm voice of the pilot as the plane leaps and dives.
When Premiere gave Limbaugh an eight-year, $400 million contract in 2008, it was with the expectation that it could sell the commercial time on his show at premium rates. That deal is up in 2016, which is a long time from now. But if, at that time, it’s hard for Premiere to find sponsors to take the slots, or to find radio stations to carry the show, he won’t get nearly as rich a deal next time around.
That's assuming that Clear Channel isn't completely demolished by vulture capitalism before 2016. Good luck with the hip digital re-branding. 

In April of this year, DialGlobal, one of the radio industry's largest companies for syndicated formats and special events, issued a clear warning about the controversy stirred up by right-wing talk show host like Limbaugh in its annual report.
Tom Taylor of fills us in with the details:
DG's first 10-K annual report since it folded in Westwood One's Networks division last October is very up-to-date - it acknowledges the effects on the ad market of the Rush Limbaugh controversy. Dial Global says it's dealing with the issues - keeping certain national spots away from controversial programming - by reviewing its internal procedures. While detailing its risk factors, it says "advertisers may decide to exit news/talk programming altogether."
That view was supported by Lew Dickey, the CEO of Cumulus, one of the biggest radio companies in the country. As Jack Mirkinson, writing for Huffington Post, explains:
Dickey said that Cumulus had lost "a couple of million bucks in the first quarter and a couple of million bucks in quarter two." He claimed that the losses accounted for one percent of the 3.5 percent loss in revenue that Cumulus suffered over this period.
It's the first time any sort of monetary figure has been given about the impact of the boycott. Cumulus is also a relatively small player where Limbaugh is concerned, airing his show on just 38 stations around the country. Dickey's comments could mean that companies that have a bigger stake in Limbaugh's show were hit harder.
For his part, Limbaugh has claimed that the boycott had a negligible impact and that many of the advertisers who left his show have been clamoring to return.
But then Limbaugh is not known for his impartiality nor for his adherence to the absolute truth.

Hush Money

When asked to comment about the notable Limbaugh remark (Sandra Fluke) Romney's response was extremely weak. One could even call it cowardly.
"It's not the language I would have used."
Nothing else. Nothing about, for example, the need for restraint in these often volatile times. Just a poor choice of words, that's all.

It might be properly argued that this has very little to do with Mitt Romney since apparently Bain Capital now operates independently of its original founder. I use the word "apparently" because, until Romney deigns to release his tax returns, nobody can be absolutely sure that he doesn't continue to profit from the corporate decisions of Bain. (Some have even speculated that his mysteriously large IRA is a sign of his continuing profit-making through Bain.)

If Romney has to choose his words carefully when speaking of Rush Limbaugh,(or any of the others that haunt the clear Channel studios) it's perfectly understandable. 
After all, fourteen directors of Clear Channel have contributed $726,400 to Mitt Romney since 1994, most of it in the current presidential campaign. As we have seen, that's chump change when it comes to Romney's campaign. 

Naturally, Bain execs, like their Clear Channel counterparts, have also ladled in the loot to Romney's SuperPAC. Last year, I reported the details of the million dollar contributors. One of those was a former managing director at Bain, Ed Conard- who recently, remarkably, went to bat for Mitt during the tax returns crisis- went to a lot of trouble to set up a dummy company whose sole purpose was to hide Conard's hefty donation. All in all, the good people at Bain have been supportive and generous to Romney. Practically like family.
 Anne Farris Rosen, writing for TruthOut, notes:
Current and former Bain executives and their relatives have given about $4.7 million to organizations dedicated to making Romney the next president of the United States, according to a Center for Public Integrity investigation.
There's also the problem that criticizing Limbaugh is criticizing Clear Channel. Criticizing Clear Channel is indirectly criticizing Bain Capital which Romney himself founded. 

Additionally, there's also the added danger- something which always weighs heavily on a mind like Mitt Romney's- that he could easily anger the loudest mouths in media and incur their wrath. It's really this kind of leadership that makes people question whether Mitt Romney is really presidential material. 

Domestically there's another problem with Romney. Perhaps it is time to ask whether Romney's byzantine business connections might not be a major handicap in his ability to lead a nation or to make decisions in the best interests of all Americans, rather than his own 1% crowd.