The Tangled Web of the New York Times Co and the Boston Red Sox

Check out the Red Sox Daily Links page for coverage of the Sox against the Blue Jays this weekend.

At the prompting of BSMW member Jeff, I’ve been looking at the New York Times 10-K Filing for 2005. As the member pointed out, there are a few nuggets of interesting information buried within the massive document.

I don’t pretend to be an expert analyst when it comes to business or accounting, but here were some things that seemed to be interesting.

The first area is circulation. The Times saw theirs go up a bit in 2005, while the Globe’s declined. The filing notes:

The decreases in weekday and Sunday copies sold in 2005 compared with 2004 were primarily due to a directed effort to reduce the Globe's "other paid" circulation (primarily third-party bulk sponsored copies but also hotel copies); the positive impact in 2004 of the Red Sox World Series victory; and continuing adverse effects of telemarketing legislation.

(Italics mine) So the success of the Red Sox is a significant enough factor to influence the overall circulation of the paper that they would mention it here. This also reminds us of WEEI’s recent ratings dip after the Red Sox and Patriots failed to successfully defend their championships. It would seem that again, it’s the success of the teams is just as important, if not more so, to circulation and ratings then is the personalities at the paper and station.

Another area is more complicated and involves the company’s 17% ownership stake in the club. On page 2 of the Index of the filing, when talking about the assets owned by the company:

Additionally, we own equity interests in a Canadian newsprint company and a supercalendered paper manufacturing partnership in Maine; the Discovery Times Channel ("DTC"), a digital cable television channel; New England Sports Ventures, LLC ("NESV"), which owns the Boston Red Sox baseball club (including Fenway Park and approximately 80% of New England Sports Network, the regional cable sports network that televises the Red Sox games); and Metro Boston LLC ("Metro Boston"), which publishes a free daily newspaper catering to young professionals in the Boston metropolitan area (interest acquired on March 10, 2005).

(To be clear, The New York Times Co. owns 17% of NESV. NESV is the parent company that owns the Red Sox and 80% of NESN.)

Here’s another statement from the 10-K:

We have ownership interests in one newsprint mill and one mill producing supercalendered paper, a high finish paper used in some magazines and preprinted inserts, which is a higher-value grade than newsprint (the "Forest Products Investments"), as well as in DTC, NESV and Metro Boston. These investments are accounted for under the equity method and reported in "Investments in Joint Ventures" in our Consolidated Balance Sheets. For additional information on our investments, see Note 5 of the Notes to the Consolidated Financial Statements.

The “equity interest” and “equity method” of the statements are what is of interest.

With permission from the reader, I’m going to use what he said on the topic:

“When a company owns less than 50% of another company, accounting rules require it to choose from one of two possible methods of accounting for that investment: the “Cost Method,” or the “Equity Method.” The general rule is that if you own between 20%-50%, you should use the Equity Method. If you own less than 20%, you should use the cost method.

I bring this up because the The New York Times Co. owns 17% of the Red Sox. Yet it accounts for its investment in the Red Sox under the Equity Method, which is a bit unusual. Under accounting rules, the Times would only account for this investment under the Equity Method if it has “the ability to exercise significant influence over operating and financial policies” of the Red Sox.

In other words, the accounting rules presume that a 17% owner would not yield significant influence. Yet the Times has concluded that, despite this presumption in the rules, its influence with the Red Sox is so clearly “significant” that it has treated its investment as an exception to the accounting rules. The cartel is alive and well…

Here is an excerpt from the actual accounting rules for the truly masochistic:”

The Board concludes that the equity method of accounting for an investment in common stock should also be followed by an investor whose investment in voting stock gives it the ability to exercise significant influence over operating and financial policies of an investee even though the investor holds 50% or less of the voting stock. Ability to exercise that influence may be indicated in several ways, such as representation on the board of directors, participation in policy making processes, material intercompany transactions, interchange of managerial personnel, or technological dependency. Another important consideration is the extent of ownership by an investor in relation to the concentration of other shareholdings, but substantial or majority ownership of the voting stock of an investee by another investor does not necessarily preclude the ability to exercise significant influence by the investor. The Board recognizes that determining the ability of an investor to exercise such influence is not always clear and applying judgment is necessary to assess the status of each investment. In order to achieve a reasonable degree of uniformity in application, the Board concludes that an investment (direct or indirect) of 20% or more of the voting stock of an investee should lead to a presumption that in the absence of evidence to the contrary an investor has the ability to exercise significant influence over an investee. Conversely, an investment of less than 20% of the voting stock of an investee should lead to a presumption that an investor does not have the ability to exercise significant influence unless such ability can be demonstrated.

Back the analysis of the reader:

“Significant influence and control are two different things. If Henry owns 52% he has control. But that doesn’t mean the NY Times or other investors don’t have significant influence.

A conspiracy theorist would point to the Times ability to give the Sox more coverage than the Yankees and Mets in a nationally published New York based paper, or the ability to direct negative coverage of the team if Henry put them on ignore, as the ability to exert significant influence (beyond that typically exerted by a 17% shareholder).

The important point is that the Times’ own view of the situation is that they exert more influence than the typical 17% investor in a typical investment does. This viewpoint has a material impact on its financial statements, and puts them at risk under the securities laws were it not a defensible position.”

Does this make Mark Jurkowitz a conspiracy theorist?

So does this have anything to do with the current Red Sox radio rights negotiations? Could The New York Times Co. be influencing the discussions one way or the other?

Well, again it would take conspiracy theorists to come up with this, but a plausible connection could be made here.

We know how the Times (Globe) feels about WEEI as evidenced by the long-standing feud between the entities. The New York Times Co. also owns a number of radio and television stations. This is how the Times describes their business strategy in this regard:

Our strategy is to build a lean, agile and disciplined organization that will invigorate growth across our existing businesses and platforms, create lines of products in key content areas across multiple mediums...

Now let’s look at an excerpt from today’s Herald article which told us that a deal between the Red Sox and Greater Media was close to fruition.

The price could hit $14 million per year. Sources say both Greater Media and Entercom, whose WEEI-AM (850) is the incumbent, have offered that much. But Entercom is said to be offering cash, while Greater Media would provide both cash and a substantial equity stake in WBOS.

This is an interesting twist. The Red Sox are apparently at least seriously considering turning down cash in order to obtain an equity stake in the radio station. A stake that would allow them to present content “across multiple mediums.” Sure, this is a business model the Sox may very well have pursued without the New York Times Co. being an investor. But you could also take the stance that the Times’ “significant influence” on the negotiations is pushing the Sox to WBOS.

Separate from this but also of interest is Jay Fitzgerald’s story in the Herald on Wednesday which had Morgan Stanley, which is a major shareholder in the New York Times Co. expressing displeasure with the company’s performance in recent years. This quote ends the article:

Ed Atorino, an analyst at Benchmark Co., said he thinks Morgan Stanley's challenge won't lead to changes. Atorino said the real problem with the Times is its Globe subsidiary, which has seen dramatic advertising and circulation declines in recent months.

Media Columns From Around the Country:
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David Scott, BSMW – From the Shanty to America’s Most Beloved Ballpark.

Fluto Shinzawa, Boston Globe – Seeing is believing with ESPN’s latest call.

Jim Baker, Nashua Telegraph – “The Game” happy to play without ESPN’s name in Nashua.

Andrew Neff, Bangor Daily News – Presque Isle banker earns shot at poker payday.

Richard Sandomir, New York Times – NBC, OLN, N.H.L. Try to Melt the Ice.

Bob Raissman, New York Daily News – No voices of reason.

Neil Best, New York Newsday – NBA not exactly must-see TV.

Phil Mushnick, New York Post – Common Sense: Booze and sex, not race or class, fueled the Duke rape case.

Andrew Marchand, New York Post – Lucas will audible for SNY.

Michael McCarthy, USA Today – ESPN, NFL Network upping ante for draft.

Michael Hiestand, USA Today – Breen gets top NBA assignment.

Barry Jackson, Miami Herald – ESPN gives Heat-Bulls opener ‘full circle’ coverage.

Dave Darling, Orlando Sentinel – NBA, NHL begin 2nd seasons.

Roger Brown, Cleveland Plain Dealer – Browns-Steelers ‘thrills’ NFL Network.

Chris Zelkovich, Toronto Star – Broadcast partners make strange bedfellows.

Tom Hoffarth, Los Angeles Daily News – NBA needs L.A. cooperation.

Larry Stewart, Los Angeles Times – NFL Network Pursues Gumbel, Collinsworth.

Also Stewart – Unlike `Bonds’ Series, This Show Fit for King.

Jay Posner, San Diego Union Tribune – Fans likely losers in MWC package.

Other notes:

I’m not sure how many more times I can stand a caller to WEEI stating “They should send Wily Mo Pena to Pawtucket instead of Adam Stern” and then having the host inform them that Pena has no options left and therefore cannot be sent to Pawtucket. It puts a dent in the whole “most intelligent fans in the country” argument.

Times like this is when I need to calm down and remind myself that talk show callers are usually not at all representative of the general fandom.

Speaking of Wily Mo, it seems that he has replaced Edgar Renteria as the whipping boy of the sports radio world. The airwaves have been dominated with endless criticism of Pena and the deal that sent Bronson Arroyo to the Reds to acquire him. I don’t quite get it. Why the love for Bronson Arroyo?

Have a great weekend…

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