while enriching the few at the expense of the many.
In 2006, Mitt Romney officially announced his run for president of the United States.
Also in 2006, Clear Channel, the largest radio network in the world, announced that it was being purchased and taken private by Bain Capital, the one time (and perhaps still?) Mitt Romney-controlled private equity fund.
Clear Channel includes the subsidiary Premiere Networks, which maintains a stable of conservative talkers including Rush Limbaugh, Sean Hannity, and Glenn Beck. Other conservative talkers, including Michael Savage and Mark Levin, have been considered a part of the Clear Channel family, if not actually syndicated by Premiere Networks. Limbaugh, Hannity, Savage, Beck, and Levin, conservatives all, are the top five talkers in the country, measured by audience numbers.
According to Sue Wilson, "local talk radio hosts and their guests and callers [use] our public airwaves ... to exclusively promote GOP candidates." This issue became abundantly evident during the Recall of Wisconsin Governor Scott Walker:
We discovered that each Right Wing Talk radio station in Milwaukee is giving about 80 minutes every day to the GOP side. Out of fifteen hours of programming, that doesn't sound like much, but it would cost between $34,000 and $68,000 for supporters of Tom Barrett and the Democrats to buy that time. That's $34,000-68,000 every single day.Imagine that very significant advantage extrapolated throughout the country. Clear Channel is, in essence, the Fox News of networked radio.
--Sue Wilson: Huffington Post, Putting Talk Radio on Trial at the FCC
It may not be a surprise that a company with such significant conservative propaganda value would be a takeover target for a private equity company like Bain Capital. It also should not surprise you then that such a company as Bain — once owned by one of the wealthiest men in the country, who just happened to be running for president — might simultaneously see that takeover target as a cash cow. If these two goals conflict — well, no one ever became filthy rich while mired in too great a concern for details.
Clear Channel is a conglomerate, but is principally two companies: the radio network division, and the outdoor billboard division. More than 97% of Clear Channel’s quarterly revenue comes from these two divisions.
Early this year, largely as a result of the Bain takeover, Clear Channel was in debt more than 19 billion dollars. Last March, Bain Capital took an additional 2.2 billion dollars out of Clear Channel, so the debt is now greater than 21 billion.
Big debt comes with harsh deadlines. Clear Channel has to come up with $500 million in debt payments by the end of 2013, a payment of $1.1 billion due in 2014, and then a much larger payment of $12 billion due in 2016.
One might expect that a conglomerate would necessarily be profitable in order to deal effectively with such debt. So far it appears that such speculation is flat out wrong. Clear Channel lost $4 billion in 2008, and another $4 billion in 2009. But by 2011 Clear Channel was making great strides, reducing its losses to a mere $302 million. The 2012 first quarter loss was $141 million. Loss in the 2012 second quarter was $28 million.
Why the continued losses? In spite of crushing debt, Clear Channel's radio division has been "splashing the cash" in "an attempt to rebrand itself as a hip digital music giant." Some analysts had already downgraded Clear Channel Outdoor Holdings, the Clear Channel billboard division, and recommended investment in their competition.
So Clear Channel has since decided to restructure $2 billion of its debt. This has been described as "kicking some debt down the road", meaning that all of the 2014 payments, and a small part of the 2016 payments, will now be due in 2019. The significant drawback to rescheduling this debt is higher interest payments, which have been estimated at an additional $100 million per year. And Moodys says that more of the 2016 debt will need to be rescheduled.
Now think about this circumstance. Mitt Romney's Bain Capital bought Clear Channel and financed their purchase with deep debt. Their corporate austerity requirements have forced layoffs, the most recent of which occurred on March 30 of 2012. That was just two weeks after Bain Capital raided Clear Channel's assets by forcing a two billion dollar dividend payment, paid for with a loan arrangement which prompted lawsuits. Just six months later, Clear Channel (as one of Bain Capital's piggy banks) finds it necessary to seek two billion dollars in debt relief (imagine that!) by "kicking the [debt] can down the road".
Let us do a very rough back of the envelope calculation on this arrangement. Clear Channel gains five years of relief, from 2014 to 2019, at 9 percent priority guarantee note interest, or a cost of approximately $500 million dollars. The total interest, in other words, is something like 25 percent of the $2 billion in debt relief.
But this $2 billion in rescheduled debt is roughly one/sixth of the Clear Channel debt that needs to be rescheduled. With another ten billion or so to reschedule before 2016, one might expect interest payments to rise by another half billion dollars a year over and above current debt service. Not healthy for a company that is already more than twenty billion dollars in debt.
Raiding assets and replacing them with crippling corporate debt is one of the mechanisms by which Mitt Romney has made his hundreds of millions of dollars, and by which Bain has made its many billions.
What does this heavy debt burden do to such a company's ratings? The restructuring offer "has received a Caa1 rating from Moody’s. Meanwhile, Clear Channel’s Corporate Family Rating remains unchanged at Caa2, and its Probability of Default Rating remains at Caa3."
Caa1, Caa2, and Caa3 are "rating[s] within speculative grade Moody's Long-term Corporate Obligation Rating. Obligations rated Caa3 are judged to be of poor standing and are subject to very high credit risk." [emphasis added]
Moody's says, "Even if Clear Channel is able to refinance its 2016 maturities, the company will remain vulnerable to a slowdown in the economy... the company will remain poorly positioned to withstand another economic downturn in the future."
[excerpts] Clear Channel's ability to address its capital structure also hinges on a relatively benign macroeconomic environment. A severe downturn will quickly remove the refinancing alternatives provided by these amendments. The company's operations are tied to the overall advertising environment, and the largely fixed cost base can drive outsized EBITDA declines in a downturn. This would serve to increase leverage and reduce FCF, severely impeding the company's financial flexibility and negotiating position with its lenders...Does anyone believe there will be no downturn in the seven years prior to 2019?
Fitch believes a default is a real possibility. [emphasis added]
—MarketWatch: Fitch Affirms Clear Channel's Ratings; Outlook Stable
When Bain forced the special dividend, it used the stronger billboard division as a piggy bank, forcing it to loan cash to finance the dividend. The perception of unfair terms for the loan is what prompted lawsuits. Fitch sees the possibility that Bain could raid the company again:
[excerpt] [T]here are strong operational ties [from the billboard division] to the weaker parent, including centralized treasury and senior management overlap. Additionally, the parent can pull cash out of the sub (with restrictions), which it will rely on to service a portion of its debt.With Bain Capital's sorry history of bankrupting other companies, would you trust Bain not to take out billions more from Clear Channel, just because it can?
—MarketWatch: Fitch Affirms Clear Channel's Ratings; Outlook Stable
As if all of this wasn't enough to cause anxiety in Limbaugh Land, El Rushbo's favorite advertiser Angie's List is in a special kind of trouble.
The Potential Impact On El Rushbo
Rush Limbaugh received a contract worth $400 million in 2008. Because he received $100 million of that amount as a signing bonus, he is scheduled to receive $38 million per year from now through 2016.
When Limbaugh infamously went on his three day tirade against Sandra Fluke, the fallout wasn't limited to his show. The reaction of corporate PR Departments to the media firestorm about "sluts", "prostitutes", and "sex tapes" was so severe that there was a backlash against all of conservative talk radio. In just ten days, talk show hosts Michael Savage, Glenn Beck, Sean Hannity, Mark Levin, and Tom Leykis were also being flagged as potentially controversial talkers, and national advertisers wanted no association with any of them.
Radio was already fragile before the Fluke controversy; one month before the advertiser exodus, Forbes referred to the Clear Channel radio division as a "loss leader". Demographic shifts and technology had already put radio — and especially talk radio — on the ropes, and Limbaugh's indiscretions threatened to push it over the edge.
The first major, controversy-inspired blow against talk radio came when 98 corporations with nationally recognized brand names announced they were leaving. This hit the news by accident precisely one week after the "slut" controversy; Premiere Networks posted a memo that wasn't meant for public consumption. When the news broke, the memo was immediately removed, but by then it was too late. Not only was the corporate backlash unprecedented, Premiere simultaneously announced that it was suspending all national advertising for two weeks. If that seemed a severe hammer blow against talk radio, the entire radio industry was under the gun: the disaster began to spread, infecting even stations with an all music format.
There is an Internet meme that "Limbaugh's show is free to the local stations that carry it", and that's how he keeps his empire intact. It is pretty much false; noted radio consultant Holland Cooke observes that "in many markets, The Rush Limbaugh Show costs more than a solid local host would." Limbaugh was such a big sell a few years ago that many radio stations signed contracts requiring them to give up radio ad slots in the show and outside the show, in addition to paying Limbaugh's standard content fee. Some are even required to give up three hours on Saturday for a recap of Limbaugh's weekday shows. All of this represents potential revenue that could be going to the station. And it all happened because Limbaugh's alleged "twenty million audience" seemed such a great advertiser draw. But the twenty million claim has since been proved false, with estimates now of less than fifteen million. Limbaugh, of course, refuses to admit to the diminished measurements.
Post Fluke, everything has changed. Now Limbaugh's high dollar contract puts pressure on the balance sheets of many radio stations. National advertising support, not just for Limbaugh but for all of conservative talk radio, continues to "dwindle". As Media Matters explains it, Clear Channel is "paying Limbaugh $750,000 weekly for a show that's shedding $1 million from its bottom line every seven days."
One might expect that Limbaugh would acknowledge his loss of clout and his increasingly weakening position, and soften his language, if not the his sharp-tongued political partisanship. While it occasionally seems that Limbaugh is wary of once again touching that hot stove, all too often he cannot resist "going there". And "there", as often as not, means continuing to harass Sandra Fluke. His continuing Fluke diatribes routinely incorporate themes such as condoms, body fluids, abortion, birth control, pregnancy and, tangentially, even rape.
Radio industry professionals are well aware of the danger. Talkers Magazine recorded a quotation from Phil Boyce, Vice President of Spoken Word for Salem Communications, who warned about http://stoprush.net,
"There is a website out there listing all the advertisers Rush still has [and] encouraging the protestors to go after [them]."Boyce was on a National Association of Broadcasters panel that, in essence, had just advocated firing Limbaugh and replacing talk radio with an all news format. It seems that trepidations in the radio industry run deep. With Limbaugh's continuing indulgence in racism, misogyny, bigotry, and implicit threats of violence, there must be a great concern that week after week, Limbaugh inspires ever increasing cadres of anti-Rush activists to join those already dedicated to his demise.
—Talkers Magazine: Talk Radio/Media Industry News
Limbaugh seems oblivious; he still brags about his industry experience and his business acumen, even as his efforts to counter the opposition go awry. In spite of his braggadocio, he was forced to hire a crisis manager in the wake of the Fluke scandal to pull his fat out of the fire. He might have saved himself a lot of money and grief if he'd simply consulted a level headed radio professional about his Fluke flurry. Holland Cooke, for example, predicted the permanent damage Limbaugh was doing to himself while Limbaugh was still ensconced in his three day Fluke harangue. Ahhh, arrogance, thy name is Rush.
How is it all likely to end? In spite of potentially disastrous foibles, Limbaugh has built an enormous radio empire, and for years was credited with revitalizing the AM band. No vast empire falls in a day. Indeed, the cracks are only just beginning to show.
Many have predicted that next summer will be a critical period — some 40 Cumulus stations are believed to have contract expirations then, and it seems possible that Rush could lose those stations to Mike Huckabee. If so, that could mark the beginning of the end of the Limbaugh empire.
|Rush Limbaugh's talk radio career is in a slow downward spiral in part because of the activism of consumers, volunteers, and activists who seek to hold Rush accountable for his hate speech. One very active group in this cause is Flush Rush on Facebook. Flush Rush and other, similar groups use the StopRush Database to inform advertisers about where their ads are appearing.
Please consider joining. Small donations are also accepted to fund data storage; visit StopRush for more information.
|The Media Action Center is dedicated to "Putting the Public Back into Broadcasters' 'Public Interest Obligations'."
It may be found here.