Somewhere East of Eden

Why the St. Pete Times model can't save newspapers

The temple housing Nelson Poynter’s holy relics of journalism is located outside of downtown St. Petersburg, on a sunny chunk of Florida real estate just a stone’s throw from America’s only museum dedicated to the surrealist master Salvador Dalí. Visiting both buildings in quick succession, as I did last summer, offers an interesting study in contrasts. Dalí’s work highlights the transient nature of reality, invoking an often-nightmarish landscape. Across the street, the Poynter Institute exudes a kind of stately permanence and clarity of purpose, which is exactly what its founder sought in creating a haven for journalism.

With the profession facing its own nightmarish landscape these days, many journalists have expressed a renewed appreciation for the nonprofit Poynter Institute and the newspaper it owns, the St. Petersburg Times. Visiting the institute’s tidy campus, it’s easy to see why. Here is a true refuge: a place where reverence for newspaper culture is on conspicuous display, in a facility that is part museum, part library, part school, and wholly consumed by its mission to promote the cause of journalism.

Perhaps that’s why in recent years the story of Nelson Poynter and his institute has become something of a soothing bed-time story for traumatized journalists. While reporters are forced to endure draconian cuts in their own newsrooms—many of them enacted (as journalists see it) by mutton-headed managers with their eyes riveted on the bottom line—they can still dream of a land not too far away where a well-tended band of scribes toils under the benevolent gaze of ownership unconcerned with trivial matters such as EBITDA and online ad revenue. The reality, of course, is more complicated, and demonstrates why the Poynter model offers no easy cure for the ills that plague American journalism, even at the newspaper it was created to save.

Trust and Debates

“We are a private, for-profit company.”

This was virtually the first thing Paul Tash, the lanky, fifty-three-year-old Indiana native who heads the St. Petersburg Times, said to me last summer when we met in his office to talk about the Poynter model. It was a point he would make even more emphatically a few weeks later in a letter to The New Yorker, after the writer Steve Coll referred to the Times as a “nonprofit foundation” in a story. Clearly, Tash is irked by the lingering misconception in journalism circles that his paper is some kind of altruistic venture. Much of this confusion, though, can be chalked up to the paper’s curious ownership history.

Almost immediately after gaining control of the Times in 1947, Nelson Poynter began to contemplate its future after his death. He had bought the paper from the previous publisher, his father, for $50,000. Still, Poynter did not want the paper to become a family inheritance, famously stating that, “I’ve never met my great-grandchildren and I might not like them.” Instead he conceived of leaving the Times to a nonprofit foundation his family created in 1953.

This turned out to be more complicated than Poynter envisioned. By the late 1960s, Congress had become leery of nonprofits owning commercial enterprises even as they continued to reap tax benefits from their nonprofit status. In 1969, a new law stipulated that a nonprofit could own no more than 20 percent of a commercial enterprise—even if that enterprise happened to be a newspaper.

The law, however, included a few exceptions, notably one for educational institutions. So Poynter decided to create a school of his own. Originally dubbed the Modern Media Institute, it was renamed the Poynter Institute for Media Studies eight years after Nelson Poynter’s death—an honor he had specifically declined in life.

Poynter’s will left three-quarters of his shares in the Times Publishing Company to the school, with most of the balance going to his wife and children (these shares, too, were eventually given or sold to the institute). More radically, Poynter granted his designated successor the sole authority to vote those shares, as well as the exclusive power to name his own successor when the time came. This lucky individual receives no direct financial benefit from the proxy, but essentially wields total control over both the newspaper and the institute, including the ability to set his own salary. And today, that unassailable position is occupied by Tash. He serves as editor of the Times, chairman and CEO of the Times Publishing Company, and chairman of the board of trustees of the Poynter Institute, giving him the kind of operational clout that Donald Graham or Arthur Sulzberger might envy.

Tash presides over an intricate capital structure. The Poynter Institute owns the shares of the Times Publishing Company, which in turn owns the St. Petersburg Times, Congressional Quarterly, and several smaller publishing ventures. Roughly two-thirds of the profits generated by the publications go to the Poynter Institute in the form of dividends from the publishing company. As Tash is quick to note, this means that the paper must make money for the institute to receive its annual funding. So, the market pressure is still there—mitigated, of course, by the fact that the executive who controls the paper (Tash) also decides how much money should go to the owner (the institute), which he also controls. It’s a closed loop, and a virtuous one in the minds of most journalism boosters.

That doesn’t mean there isn’t occasionally tension between the institute and the Times. In 1976, its first full year of operation, the Poynter Institute had four employees, ran eleven seminars for 267 students, and leased 4,500 feet of cheap, downtown office space. By 2007, it had over sixty employees and offered 120 programs and “webinars” for nearly 64,000 students, both on site and online, not to mention costs associated with maintaining its nearly six-acre campus. This is a fairly large tab for the paper to pick up. In 2006, for example, the combined revenue of the company’s publications yielded about $6.2 million in dividends for the Poynter Institute, about two-thirds of its total funding.

Tash says the goal is to keep the profit margin of the Times above 10 percent, roughly half of what most newspaper companies demand. (He also acknowledges falling short of that benchmark in the last two years.) But despite this more modest target—and despite the undeniable advantage of having a nonprofit as your ultimate boss—the Times faces the same problems as almost every other newspaper. Its advertising revenue is sensitive to the local real-estate market, which was soft even before the recent meltdown in subprime lending and seems unlikely to recover any time soon. The paper has cut about 10 percent of its newsroom staff in the last year, and shrunk its physical size as well, absorbing the attendant decrease in the newshole. In an attempt to capture younger readers, the Times has also launched a free daily tabloid, the tbt*/Tampa Bay Times, but Tash acknowledges it is still losing money at this point. He expects it to start showing a modest profit by the end of 2008 (ahead of internal projections). In January, the company also announced it would sell CQ Press, Congressional Quarterly’s successful book-publishing division.

Still, given the pressures most newspapers contend with, reporters and editors at the Times know they have it good. “We’re aware of the structure and how it’s special,” says Neil Brown, the paper’s executive editor, who goes on to call the Times “a jewel of American journalism.”

A Model Problem

The undeniable advantages of the Poynter model naturally raise the question of how applicable it is to other large newspapers, particularly those that remain under individual or family control. On that point, it should first be noted that Nelson Poynter’s vision for the Times was not without its challengers. In the 1950s, in an effort to placate his sister Eleanor’s bruised feelings about his discounted purchase of the Times from their father, Poynter sold her a small stake in the company plus 40 percent of the voting stock. This deal included a key proviso: Poynter could buy back her stock at a fair price. But despite several attempts, he never managed to do so—and after Eleanor’s death in 1987, her daughters asked the paper to buy out their position in the company for $120 million.

The Times management declined the deal. In response, the daughters teamed up with Texas billionaire Robert Bass to try to force a sale of the entire paper. When those negotiations went nowhere, Bass upped the ante, offering to buy out all the company’s shares himself for $270 million, arguing that the proceeds from the sale would create a much more generous endowment for the Poynter Institute than the revenue stream from the publishing operation. This deal, too, was rejected, at which point Bass sued, claiming that the paper’s management was violating its fiduciary duty to the shareholders by rejecting his offer.

The case was ultimately settled out of court, and Bass withdrew his threat. Yet he had made a point relevant to anyone thinking of recreating the Poynter experiment elsewhere: the Times is a paper where all the financial decisions are made by someone with no direct economic stake in its success. “No one is like that,” quipped one Bass ally at the time of the takeover fight, “but the St. Pete Times and Pravda.”

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.

I asked Frank Blethen, whose family has controlled The Seattle Times for five generations, if we might see the Poynter experiment repeated on a larger scale. His answer was an unequivocal no. “It’s a pleasant campfire tale,” Blethen said. “But the key point why you won’t see it again…is that you have to give up most of the value in the organization, and it’s very rare for a family to do that.” Blethen thinks a more practical solution is legislation and incentives that encourage a variety of media-ownership models. “On a local and regional level, independent newspapers are still a nice business, with eight, ten, twelve percent returns. It’s the big public ownership model that’s falling apart.”

This was the very train wreck foreseen by Nelson Poynter, who died three decades ago. If his legacy to journalism is no more than having provided a viable example of nonprofit newspaper ownership, as well as a living reminder that at least some newspaper owners see their publications as more public trust than cash cow, then that’s surely enough. As Paul Tash put it, channeling the spirit of his benefactor: “Every community deserves a newspaper that loves it best.” 

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Douglas McCollam is a contributing editor to CJR.