The paper’s unusual capital structure has also drawn its share of skeptics. Yale University, which had been designated to receive Poynter’s shares if the original arrangement failed to pass legal muster, commissioned a “study” shortly after the Bass suit to determine whether it should challenge the institute’s tax-exempt status. The university’s gambit was led by noted First Amendment lawyer Floyd Abrams, who argued that the Poynter Institute was not organized exclusively for charitable purposes, as the law required. Though Yale ultimately chose not to pursue the issue, the Internal Revenue Service also conducted a multiyear review of the paper’s structure, which it eventually blessed.
The various challenges revealed some of the potential pitfalls of placing a newspaper under nonprofit control, and may in part explain why it hasn’t been tried more often. There are, to be sure, some other notable examples. The Loeb family donated its controlling interest in the New Hampshire Union Leader to the Nackey S. Loeb School of Communications (which was modeled after Poynter) in 2000. There is also The Day, in New London, Connecticut, which was placed in a trust that has survived two court challenges. More recently, The Anniston Star in Alabama also adopted the Poynter model. Brandt Ayers, whose family has owned the Star for almost a century, created his own institute at the University of Alabama, which runs an additional newspaper as a teaching vehicle. Ayers estimates that the Star’s parent company, Consolidated Publishing, will generate about a million dollars a year in dividends to fund the Ayers Institute.
Of course, all these examples (with the possible exception of the St. Pete Times) involve small private papers. Does the Poynter model have anything to offer America’s national papers of record? Maybe, but you’d have to clear a big hurdle first.
The most basic issue in replicating the Poynter model is that ownership must be willing to give the paper away. While donating such an asset to a nonprofit can help ease the burden of estate taxes, it still requires a willingness to give up a good deal of wealth, as well as notions of dynastic control.
Such generosity is hardly unheard of. Just recently, billionaire hotel magnate Barron Hilton announced that he would donate essentially his entire fortune to a nonprofit foundation, and others with high net worth, such as Bill Gates and Warren Buffett, have expressed similar intentions. George Rahdert, a St. Petersburg attorney who advised the Times in its fight with Robert Bass, says that several wealthy individuals who own or have interest in purchasing newspapers (such as billionaire Eli Broad, who explored the possibility of buying the Los Angeles Times) have sought his counsel on how to replicate the Poynter model. According to Rahdert, though, most balk at the prospect of giving away a substantial chunk of their wealth. And while money men such as Sam Zell and Brian Tierney have taken formerly public newspapers private in the last two years, the billions in debt incurred in making those deals, combined with declining advertising revenues, mean that any proposal to transfer ownership to a nonprofit institute would likely draw strong opposition from the bondholders, bankers, and fellow investors who helped finance the deal in the first place.
The situation is even more complicated for newspapers such as The Washington Post and The New York Times, which are family-controlled but publicly traded. Both papers have dual classes of stock: multiple-voting shares are tightly controlled by family members, while conventional shares are traded on the open market. This insulates the papers from unsolicited takeover attempts (though not totally, as the Bancroft family demonstrated during Rupert Murdoch’s successful bid for The Wall Street Journal). But the structure also makes it more problematic to transfer control to a nonprofit entity than it would be for a private owner. Theoretically, the voting shares could be placed in a nonprofit, while the nonvoting shares remained publicly traded. But as the Poynter Institute’s feud with Robert Bass shows, even one disgruntled shareholder would have standing to challenge the structure in court—and given the anemic performance of most newspaper stocks in the last few years, would probably have little hesitation in doing so.
“The common stock holders would clearly have an argument that this type of arrangement constrains potential returns and the marketability of the company,” notes George Rahdert. The process might be more feasible, he adds, if the Sulzbergers or Grahams first decided to take their companies private, trading debt for equity. If the deal promised “periodic payments to debt holders with no expectation of equity participation,” it just might work. But even then, concedes Rahdert, bondholders could argue that nonprofit ownership potentially endangers their payments and move to block the arrangement.