the audit

The trust-fund newspaper

The Guardian's windfall ensures its long-term future
January 30, 2014

The Guardian, which until not that long ago was respected but little-read outside the UK, is now in the front ranks of English-language newspapers and one of the most important and influential journalistic organizations in the world.

Led by its seminal editor, Alan Rusbridger, the paper broke the Murdoch hacking scandal, led the Snowden revelations last year, and played a prominent role in the Wikileaks wave of 2010, among other blockbusters.

Despite its journalistic excellence, and also because of it—the paradox of modern reporting-heavy media—The Guardian has lost hundreds of millions of dollars in recent years and will continue to do so for the foreseeable future.

Fortunately The Guardian is a trust-fund kid, subsidized by earnings from the Scott Trust’s investments, which more than offset the news division’s $51 million loss last fiscal year and has kept it afloat during the newspaper collapse. The question has been how long could the trust’s assets bankroll the Guardian‘s huge losses.

We got the answer last week: A very long time. The Guardian Media Group sold its remaining stake in one of those assets, Trader Media Group, to the other shareholder, Apax, for a billion dollars.

It looks to have had good market timing. In a year when even the Guardian was able to slightly grow revenue, Trader Media’s top line declined by 2 percent last year. Yet GMG got a huge multiple on its equity: 12.5 times earnings before interest, taxes, depreciation and amortization (ebitda), which is very high for a slow-to-no-growth media company. The New York Times and Gannet both trade at 7 times ebitda, for example, and News Corp. is at 10.8. Apple and Walmart trade at 8, Microsoft at 7.7, and Exxon Mobil is at just 6.9.

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A year ago, Apax was offering GMG just $500 million for its half of Trader Media. By September, they’d upped the bid to $780 million, which GMG rejected (wisely, in retrospect).

By holding out, The Guardian ended up hauling in twice what was on the table twelve months ago. That increase alone is half a billion dollars, or a decade of Guardian losses, though some of the profits will go to taxes (UPDATE: or not, actually, as Dan Davies tells me. The UK has a substantial-subsidiary exemption for corporate capital gains.)

As Press Gazette editor Dominic Ponsford writes in a good analysis, the “windfall puts it in sight of £1bn trust fund to protect its journalism forever.”

GMG was already sitting on a pile of cash that last July totaled $421 million and it owns one-third of another company called the Top Right Group, which owns trade magazines and events companies. If GMG were to get a Trader Media-like multiple on that—a big if— it could bring in roughly $450 million.

Add it all up and GMG would have a nearly $1.9 billion pile of cash or, conservatively, somewhere around $1.6 billion after taxes (UPDATE: if they apply. See above update). Even if that cash were to get zero return and The Guardian isn’t able to cut its $51 million annual loss, it could fund the paper until about 2045.

In reality, GMG essentially will use that money like an endowment, investing it and using part of the returns to fund The Guardian losses in perpetuity, as mandated by the Scott Trust. With a conservative payout of 4 percent of assets per year, The Guardian could get roughly $64 million annually while continuing to grow its assets, which means that absolute dollar figure would rise over time, as well.

This is what allows The Guardian to turn up its nose at digital subscriptions. It’s in an enviable situation. It’s sitting on at least a billion and a half in cash and assets with no shareholders to siphon off dividends (ahem, Sulzbergers), very little debt, and a mandate to use that cash to support the paper’s journalism.

Would that the US had that for our most important journalism organizations. The closest we’ve got is in Tampa Bay with the Poynter Institute Foundation. Its latest IRS filing shows just $44 million in net assets, down from $73 million ($99 million adjusted for inflation) in 2000.

And The Guardian, despite that huge loss last year, has actually made progress on its red ink. That $51 million loss last year was down from $73 million amidst big digital-advertising gains that more than offset print declines.

The entire labor cost of the paper—not just the newsroom, but the ad side, press people, etc.— was $200 million last fiscal year (which ended in March). Meantime, its digital revenue hit $91 million. With a newsroom of roughly 700 (including tech people) out of 1,700 overall, it’s safe to say that The Guardian‘s digital revenue now exceeds the cost of its newsroom, particularly if digital has grown since March as is likely.

The Guardian could shut down the printing presses, sell them for scrap and shave tens of millions of dollars of expenses if it needs to, bringing costs closer into alignment with revenue while helping protect not only its newsroom but also the trust fund that now looks more certain than ever to protect that newsroom in perpetuity.

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.