The Rewards of Radio Bankruptcy

Now that the first phase of radio bankruptcy is coming to an end (don't worry there will be more), the spoils of failure are being outed in grand style.

Take Citadel’s overpaid CEO Farid “Fagreed” Suleman as he lives up to his nickname.

The company under his guidance tanks.

Gives Citadel shareholders a major haircut.

Hundreds of valued employees are fired. The survivors are kept on by burdening them with additional duties for the same or lower pay.

Citadel winds up in court with a pre-arranged bankruptcy. Fends off litigants with enough money to fight for some kind of out of court settlement. Too bad for the rest.

The judge grants the bankruptcy and what happens next?

Fagreed gets a new contract.

Five-year deal with a base salary of $1.25 million.

Plus – an annual performance-based bonus and stock options -- where the real money can be made because the inmates get to set the performance guidelines.

Oh, and while Citadel employees are often forced to sign non-competes, Fagreed gets his new contract not burdened or restricted by a non-compete.

Fagreed may not be able to run a radio group profitably but he sure can negotiate a hell of an employment contract – for himself!

And his radio “wife”, Judy Ellis gets a new three-year deal for all the wonderful work she has done managing talent, firing people and helping the company underachieve.

Ellis, who somehow got to be COO, gets $500,000 a year plus bonuses. Oh boy, there is that "b" word again.

But it doesn’t stop there.

CFO Randy Taylor – you guessed it – a new contract, $400,000.

Senior VP/Finance and Administration Patricia Stratford gets to keep her job and bag $200,000 annually.

They also get stock options and bonuses.

The old board exits stage left.

Teddy Forstmann is out but gets to keep his girlfriend, Padma Lakshmi. (Hey, I’ll take that deal!).

Because Citadel couldn’t pay its debt, it had no other option but to trade debt for equity – that is, the lenders got 90% of the company and they could have kicked the under performing Suleman and his team out on their butts, but instead – they locked them in for more of the same.

Now I know what you’re thinking.

Jerry, you ask, how can this be?

And my response is, that you think consolidated broadcasting companies should be judged by their performance but Wall Street’s money game does it differently.

The new Citadel investors – the unpaid lenders, as it were – get to make plenty of money going forward even if the management team takes apart the entire operation. And don’t tempt them, either.

You want hubris?

How about the public offering that is coming for suckers – I mean, stockholders, who want to invest in radio’s version of the Titanic. Like a Timex, Citadel will always take a licking and keep on ticking. Would you buy a new Citadel stock if you weren't drunk at the time?

And, just so you don’t go away with the thought that after a brush with bankruptcy these clowns have now learned their lesson, don’t forget the new $762.5 million credit agreement that still remains on the books.

Only – and I say only -- $1.9 million in interest is due by the end of September when Citadel execs get back from parading around the NAB Radio Show like they never met a loan payment they didn’t want to repay.

And if this isn’t enough to make you scratch your heads in amazement, Citadel is rumored to be looking to acquire.

Ah, the many rewards of screwing up.

Real radio people now know that this was the game all along. The PR and spin that accompanied downsizing had nothing to do with staying alive. It had to do with greed and who better to lead the next generation of Citadel bungling than a man named “Fagreed”.

But it’s not just Citadel playing this game.

Bill Stakelin and his Regent team finagled new contracts on the eve of filing for bankruptcy and when the courts eventually approved their pre-packaged bankruptcy, Stakelin and the boys left with their money without having to do the work.

You think Clear Channel is afraid of bankruptcy?

Incredible as it may seem, Clear Channel owes about $20 billion and it comes due in a few years. Aw hell, they can always refinance it for higher interest rates, right?

And the Amazing Lew Dickey machine acts like an acquirer when Cumulus will run into its loan covenants in the next year or so.

All together now -- Who You Gonna Call?

Look … these consolidators are a joke.

If you want something positive to chew on, take a look at a few companies that are about to try to turn this thing around. They are not perfect but they’re not in this game to play Wall Street 2.

Bonneville -- Watch their new media and interactive efforts and profits.

CBS – They will sell some stations but the larger markets that remain are well run and CBS has been a leader in interactive.

– Always ran a solid group. Never really stooped to consolidator shenanigans.

Saga – Number one in remaining virtually debt-free. No one else can say that in radio.

There are a handful of other companies out there that seemingly can’t decide whether to go after the pot of gold in the digital content business.

To date, greedy consolidators have laughed all the way to the bank(ruptcy) courts.

But there is an emerging group of radio companies that could have the last laugh by actually taking a cue from digitally-minded consumers instead of bankers.

Keep a watchful eye on them.

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