In Las Vegas, no honor among newspaper co-monopolists

newspaper co-monopolistsnewspaper co-monopolistsImagine two thieves who, after a heist, can’t agree on the division of spoils, and one of them actually sues the other in court. Outrageous, eh?

That’s sort of how I see the newest lawsuit brought by the Las Vegas Sun against the owners of the Las Vegas Review-Journal. The Sun and the RJ have been in an federally sanctioned agreement for 30 years that allows them carte blanche to violate antitrust laws. Yet after three decades of enjoying these benefits, the Sun now claims the RJ is–wait for it–violating antitrust laws.

This is rich.

The Sun lawsuit–the second the paper has brought against the RJ in two years–was filed in U.S. District Court in Las Vegas on Tuesday. That’s the same day I revealed in this space a tiny legal notice buried in the Sunday edition of the jointly distributed newspapers showed a startling 11.24% circulation decline in just one year.

In my view, both papers are in a heap of financial trouble, which is why I have taken to likening them to battling scorpions in a sinking bottle. But the Sun‘s situation is clearly worse, one reason being the deep pockets of the RJ‘s owner, mega-billionaire casino mogul Sheldon Adelson, who bought the paper in 2015.The Sun has been owned for nearly 70 years by the local Greenspun family, which isn’t quite as flush.

The earlier suit is still ongoing in state court and is more of a contract dispute. The RJ just filed a counterclaim asking to end the profit-sharing pact between them, called a joint operating agreement and which has 20 more years to go, on grounds the Sun isn’t producing a high-enough quality project for the section devoted to it in the paper.

But in the new federal suit, the Sun says it hasn’t gotten any payments out of the JOA, which is controlled by the RJ, since 2017, which certainly might explain that alleged lack of quality. (This confirms my speculation in an earlier post that the payout to the Sun is “maybe no more than $2 million and perhaps a lot less.”) One result, the Sun says, is that it had to lay off its night staff with the result that all material for the next day’s edition has to be be at the printer by 4 p.m. rather than 10:00 p.m., as before, meaning late-breaking copy often runs days late. (The parent company of the Sun owns other media properties that presumably do throw off some cash.)

Whatever the merits of the new lawsuit, the deep detail in the allegations leveled by the Sun in its 36-page complaint, which I downloaded at the New To Las Vegas world headquarters, makes for interesting reading. Among the points drawing my attention:

–The Sun was “operating at a substantial loss” and “in probable danger of financial failure” in 1989 when it entered into the JOA with prior owners of the RJ. A JOA pursuant to the Newspaper Preservation Act of 1970 is a license for newspapers to jack up advertising and circulation rates that otherwise would be prohibited. The RJ handled and paid for production, distribution and advertising. Both papers bore their own editorial costs. The Sun continued to publish separately but in the evening rather than the morning. While the Sun‘s circulation “dropped precipitously,” the lawsuit says, “the Sun became profitable under the 1989 JOA” (a statement that by itself more than adequately supports the conceit of this post).

–When the two papers revised their JOA in 2005 to make the Sun a section of the RJ rather than a separately printed and distributed paper, the JOA had a positive cash flow of $121.56 million–a rather hefty sum. The Sun apparently received $12 million, suggesting the secret split between the two papers was 90%/10%. This is a magnitude of division not unusual in JOAs around the country with an exceedingly weak junior partner (I’ve seen them as lopsided as 95%/5%). Future payouts were to change yearly based on changes in cash flow.

–The Sun alleges that upon buying the RJ, Adelson set out to sink the Sun. The lawsuit claims the motivation was for political reasons–Adelson is a conservative Republican while the Greenspuns are more liberal and Democratic-leaning–rather than financial ones: “[The RJ] wants a monopoly in daily print newspapers on thought and expression and to silence those who would disagree.” The complaint says that at times, the RJ put advertising stickers over the the top of the front page, where the JOA gives the Sun the right to tout material in its section, to cover up word of the Sun‘s usually liberal political endorsements.

–The Sun may have a star witness for its case in the form of Jason Taylor, the RJ’s publisher for eight months until he was replaced by Adelson in 2016. The complaint quotes conversations among him, Adelson and Adelson’s son-in-law, Patrick Dumont, that likely could only have come from Taylor. One example from the complaint: Adelson and Dumont “asked then-publisher Jason Taylor how they could get out of the JOA with the Sun, whether the Sun had to exist at all, and how they could either buy [Sun publisher Brian] Greenspoun out or get rid of the Sun. During one such meeting, Adelson asked what would happen to the Sun if, under the JOA, there was no profit, and in other meetings continued to hypothesize about what would happen to the Sun if the RJ squeezed the Sun out of the market by eliminating its profit payments.” Adelson and Dumont are among the named defendants.

–After Taylor departed, Adelson’s new team allegedly monkeyed with the operation. Its “plan to deprive the Sun of funds needed to operate by recording zero profit was successful by the fiscal year ending March 31, 2017. [The RJ] for the first time in the history of the joint operation, recorded a negative [cash flow] in the amount of negative $2.25 million, constituting a negative 122.43% [cash flow} change from the year prior.” This claim might support my earlier expressed view that in some ways the RJ is taking it on the chin even worse than the Sun, having also to absorb Adelson’s purchase price of $140 million for the RJ. It also seems to me that the RJ’s huge loss in print circulation–something like 69% in just four years–might have have a little something to do with the negative cash flow.

–The RJ violated a provision in the JOA requiring it to promote the Sun in “equal prominence” with the RJ by essentially leaving the Sun out of all promotion, yet charging marketing costs to the cash flow split (or lack thereof), reducing the cut to the Sun.  The lawsuit says the RJ front page was redesigned in 2017 in such a way as to minimize the “noticeable mention” the JOA requires for the Sun at the top. This claim may be one reason why, in the state court lawsuit, the RJ is strenuously trying to stop the Sun from obtaining the work papers of consultant J. Ford Huffman, who was hired to do the redesign.

–The JOA gives the Sun the right to audit the RJ’s books, but the Sun alleges it had to go to court and arbitration to enforce that right.

The lawsuit asks the federal court to block Adelson from terminating the JOA, “divest Adelson of any control over the Review-Journal,” and, of course, award triple money damages. But I wonder if the Sun should then have to pay back any of the excess money it’s gotten all these years for being in cahoots with a monopoly. Just sayin’.

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