Why NYT Co. Won't Give Up The Globe

I drive a 1996 Honda Civic, and I love it. Why? It costs me virtually nothing. It gets 30 m.p.g., we paid it off years ago, and I carry no collision coverage. I could sell it, but I won't. It's running great, and it probably will last several more years.

What does this have to do with the New York Times Co. and its plan to sell the Boston Globe? One of three bids being considered would draw on the nonprofit sector. But for all the recent talk in Congress and other places of converting newspapers to nonprofits, there hasn't been much action. A look at the bidding for the Globe in light of my experience with my Honda might help explain why the nonprofit model isn't working for daily metro newspapers - and why newspaper owners are choosing instead to go with the death spiral.

The Globe does cost a lot more than my Honda to operate. But the really big bucks - the $1.1 billion purchase price - is money long since spent. Just like the cost of a new car bought 13 years ago, there's no way to recover anything close to the purchase price. I can tell by checking the Blue Book value.

The execs at the NYT Co. no doubt are learning a similar lesson after putting the Globe on the market recently.

The offer from Celtics co-owner Stephen Pagliuca and Partners HealthCare chairman Jack Connors proposed a “civic approach’’ that would involve a nonprofit foundation to help fund and run the news operation, according to a Globe report. No word on the financial terms.

Another, from the Beverly Hills buyout firm Platinum Equity, proposes a payment of $35 million and assumption of $59 million in liabilities for the Globe and associated properties in the New England Media Group, according to a report in the Los Angeles Times.

At first, I thought the LAT's numbers must have been mistaken - the $94 million value of the bid is less than 10 percent of the NYT's purchase price in 1993. But Platinum apparently was able to buy the San Diego Union Tribune for $50 million. So assuming for now that's what the market will bear, Platinum's offer carries an implied message to the NYT Co.: We bet you can't make the Globe produce profits worth more than $94 million any time in the forseeable future.

If I were at the NYT Co., I'd feel a bit insulted - and I'd start looking at the Globe the same way I look at my Honda. Sure, I could sell it for a couple thousand dollars. But it's worth more than that to me, even in its depreciated, degraded state.

So here's the question: What would it take for the Globe to generate profits that would be worth $94 million in today's dollars? A scenario based on data from the NYT's most recent 10-K report might help us see the Globe from the NYT Co.'s point of view.

Let's assume the worst - that Globe/NEMG revenues, which were $523 million in 2008, continue dropping 12 percent per year, and that the cost of capital comes at a usurious Carlos Slim rate of 12 percent per year. And let's assume a short-run time frame of five years. Even then, the Globe would have to eke out a relatively meager profit of less than 8 percent per year to do better than the Platinum bid.

Would that require more cost cutting? Probably. But the cuts almost certainly would be kinder than anything Platinum would impose. Suddenly, if I'm at the NYT Co., keeping the Globe doesn't seem like such a bad option - which is probably what the folks at Cox decided recently when they pulled the Austin American-Statesman from the auction block.

And why wouldn't the NYT Co. sell to the local guys who want to go nonprofit? It's essentially the same reason I don't donate my Honda to charity. I'm not planning to quit driving any time soon. And though the Honda might die in the next year or two, it probably won't. So even if it gets a few more dings and the hinky passenger window stops working, I'll keep driving it. When the wheels finally do come off, that's when I'll take my tax deduction.