the audit

The Post on how the Grahams lost the paper (UPDATED)

An excellent report shows how management, beset by industry decline, made things worse
September 30, 2013

The Washington Post has a fantastic, 6,300-word piece on the events leading to the Graham family’s sale of the paper to Jeff Bezos.

There’s a lot of news here, including the fact that Don Graham talked to Robert Allbritton about buying the paper. Fortunately, the sure disaster that would have been a Politico Post didn’t come to pass.

The Post also reports that Graham approached Michael Bloomberg, Eric Schmidt and Carlyle Group founder David Rubenstein, and drops this interesting, if murky, tidbit:

The asking price in other negotiations reached $600 million, according to people familiar with the talks; for one prospective buyer, the price was significantly higher, according to a person whose advice was solicited by that person.

Unfortunately, the Post doesn’t tell us whether these negotiations reached the offer stage and if so, why Graham turned to Bezos for a fraction of what he could have gotten from one of the other tycoons.

Here’s hoping this doesn’t turn into shareholder lawsuits against Graham and the Washington Post Company. Recall also that The New York Times Company turned down “significantly” higher bids for The Boston Globe, settling for $70 million from Red Sox owner John Henry.

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But, admirably, the Post‘s piece dispenses with the Graham worship and points out the family’s litany of failures, as well as the self-interest behind at least some of its other decisions.

For example, this context is excellent and would have been easy for the paper to ignore (emphasis mine):

“I think it was wrenching” for the Graham family to sell, Weymouth said. “But everyone wanted to do what was best for The Post ultimately. It’s not about what’s best for the Grahams.”

Although the sale of the newspaper might be in the best interest of its journalism, it was, in fact, also in the best interest of the family fortune and shareholders.

I wrote last year about how the Post’s management had shoveled hundreds of millions of dollars to shareholders rather than reinvest them in its namesake newspaper, which instead has slashed its newsroom. And the Post rounds out that picture:

“Don was the one pushing the budget cuts,” a onetime senior Post newsroom executive said on the condition of anonymity to protect relationships. “He always gets off easy as the avuncular figure up on the ninth floor”…

To some analysts, greater investment success — or continued big profits at the now-struggling Kaplan education unit — would have given Graham a greater ability to subsidize losses at the newspaper.

But people who know Graham say he doesn’t think that way. “It’s each business on its own bottom,” Spoon said. “That’s the way it’s always been run.”

It’s worth noting here that the Post Company’s pension fund, which was built on capital provided by the newspaper and which grew exponentially thanks to having Warren Buffett on the board, is overfunded by 41 percent, which is almost unheard of.

That means the company has some $600 million in excess pension money, despite not contributing a cent to the fund in decades. You can bet that extra money won’t sit in the pension fund forever (UPDATE: Or, actually, it probably will. Pension fund withdrawals get hit with up to a 50 percent excise tax). Part of that could have been used to move website load times out of the 2400-baud era, acquire ancillary businesses, pay Lally Weymouth’s (Graham’s sister) $300,000 salary.

Most important, it could have preserved and even expanded the Post‘s journalistic might, as then ME and now Columbia J-school Dean Steve Coll proposed a decade ago:

One of the defining moments in the story of The Post was the 2003 managers’ meeting at the Inn at Perry Cabin on Maryland’s Eastern Shore. Coll proposed tapping the paper’s national and international reputation and putting more resources into making The Post’s Web site into the digital world’s top news site. He believed that big-city dailies were marching like lemmings off a cliff, with the weakest going first and The Post, among the strongest, going last but still going.

“There were measurable and fairly certain risks in staying the course that would lead to the cliff’s edge and the only question was how quickly,” he said in a interview for this story. “The other course was to turn around and take a substantial risk using debt to buy things and reposition the paper and its journalism. It might fail spectacularly, but it would be noble.”

In response, Graham “dumped all over it,” said another editor who attended the session. Graham reiterated his mantra that the paper was and would remain a local business, with a still enviable local market penetration and local ads.

We don’t know anything, really, about what Bezos will do with the paper: One thing you can bet on, though: He’ll reverse that strategy.

Further reading:

Applaud the Grahams, but acknowledge their failures. The praise gets a bit out of hand.

Jeff Bezos’s landmark purchase of the Washington Post. We’ve now officially entered the Billionaire Savior phase of the newspaper collapse–for good or ill

The Washington Post‘s pension math. The Grahams didn’t effectively pay to unload the paper.

The Washington Post Co.’s Self-Destructive Course. Dividends, share buybacks, and an anti-paywall stance help bleed the paper dry.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.