No. of Recommendations: 2
This reeks of poor business decisions.

He should have put the buyout loans into a corporation......and kept his money separate. Instead, he risked his own personal fortunes on this - essentially gambling on a 'sure bet'.....and lost. If done right, he would have had no exposure on the buyout side personally. Or minimally.


As usual it's more complicated than that. In order to buy out the partner (the other option to be saddled with some other partner he's never met, and perhaps one who knows nothing about the business), he had to go to the banks to get the $85 million to do it. The banks don't allow you to "put the buyout loans in a corporation", not when there are no tangible assets. With a radio station there's a transmitter, a couple of microphones - and cash flows, which can be variable, and banks don't like that.

Well, this was in 2006, and everything was fine as long as everything was fine, but then came 2008.

It's hard to see that the station value plummeted 50%.....but it could have.

Station values didn't crumble 50%, but cash flows got below the "banks agreed covenant" and they came calling. (If you've never done a large business loan, it works like this: you agree to maintain a certain level of profitability. To insure this they assign a 26-year-old who knows nothing to watch over you, and he leaves you alone unless the numbers cross, in which case he lights your hair on fire. You only need a couple quarters of "below covenant" cash flows, and the bank demands its money back. All of it. Right now.

In other times you might find a better banker, or perhaps a money man, but this was 2008 and there WAS NO MONEY. Well, there was Sam Zell, he who has destroyed WGN and Tribune Television and Tribune Newspapers, and he fronted enough to keep the bank away for a 25% share, soon to rise enough to take control, and then to sell the station and leave almost nothing behind.

It's a complicated story, and unless you're personally invested in it, not that interesting. What always gets me is why people like Bernie Ebbers who had gazillions of dollars would leverage up on MCI so he could have a gazillion-and-a-half dollars. Or the guys at Enron. Or Sam Zell, for that matter. Or the Hunt Brothers of Texas who were already billionaires, and who lost it all in their attempt to corner the silver market.

Why do they do that? Why not be happy and enjoy the fruits of the earth; why do they have to own all the fruits? Maybe they will, but they can't eat all those fruits anyway. Maybe they'll end up in a one bedroom condo in a cheezy suburb, like this guy. Sometimes, even, they end up in jail. Weird.
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.