Shameless in Seattle
The morning of February 19 will bring more than business as usual at 400 South Record Street. In the cavernous lobby of the A.H. Belo Corporation's downtown Dallas office building, freshly brewed coffee and orange juice will flow for a crowd of very happy, mostly rich people. A group of sober-suited executive officers--led by boyish Belo chairman, president, and chief executive officer Robert W. Decherd--will descend from their upper-story offices and convene a special meeting of company stockholders.
Ever since Decherd, at the tender age of 30, helped take his family's button-down media company public in 1981, the Belo boss and his inner circle have set about building a media juggernaut, carefully picking the choicest properties to add to Belo's holdings. The company's reach now stretches to both coasts, with ownership of television stations in some of the country's largest markets, including Houston, Seattle, Sacramento, and New Orleans.
Most likely, the special shareholders' meeting will be a lovefest. On that particular morning, investors will be asked to approve Belo's merger with The Providence Journal Company. First announced last September, the merger offers succulent additions to Belo's media empire--the Providence (Rhode Island) Journal newspaper, nine network-affiliated television stations, and four more independent television stations, all of them in top-60 U.S. markets.
Shareholders are expected to handily approve the $1.5 billion deal, adding the Providence holdings to a Belo chain which already includes four daily newspapers--most notably the company flagship and Dallas' only daily, The Dallas Morning News--as well as WFAA-Channel 8 and six other stations. Belo will also gain the Providence Journal's embryonic cable channel operations.
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Smiles and good cheer will abound. And why not? As of September 30, 1996, according to the company's proxy statement, A.H. Belo Corporation had total assets of $1,209,589,000. During the past decade, Belo--thanks in no small part to the savvy, preppie Decherd--has cannily bought up broadcast stations in growing markets that could no longer stave off the invasion of media conglomerates. The Providence acquisition--fueled by the approval of an unprecedented $1 billion line of credit for Belo last summer--will finally, truly, vault the homegrown, increasingly ambitious Belo company into the lower echelon of the media big leagues.
The Providence Journal acquisition will make Belo the country's eighth-largest television group by revenue and 10th-largest in audience size, according to an October 17 Morning News story. A Broadcasting & Cable story during the same week predicted that Belo will be the nation's 11th-largest TV group owner.
At least one man, however, will not be sharing in the general glee. Charles A. Dunbar, 72, with dual residences in Grand Prairie and Lake Clarke Shores, Florida, believes he has seen the darker side of doing business with Belo and Decherd.
Dunbar is waiting for a different date to come around. On March 10, he expects to be sitting in state District Judge David Godbey's courtroom, hoping to convince a Dallas County civil jury that Belo's touch--and Robert Decherd's--isn't always so golden.
Dunbar, president and sole officer of Dunbar Media Group Inc., is suing A.H. Belo Corporation for breach of contract over a business transaction with Decherd which took place nearly three years ago. In the summer of 1994, Dunbar, a longtime broker of TV and radio company sales, approached Decherd with the makings of a sweetheart deal. For the sum of $160 million, Dunbar told Decherd, he could broker Belo's purchase of two major-market television stations. If the sale succeeded, according to an initial agreement both men signed, Belo would pay Dunbar a commission of 1 percent on the final sale price--$1.6 million.
But the deal ended far off the mark. In the end, Decherd paid $162.5 million for just one of the stations--KIRO-TV in Seattle. KIRO's owner, the Mormon Church-owned Bonneville International Corp., decided against selling the second station in question, KSL-TV in Salt Lake City.
After agreeing to pay $160 million for just one station, Decherd learned that KIRO would lose its valuable CBS affiliation. And indeed, a few months later, KIRO became an affiliate of the United Paramount Network--land of the slap-dash syndicated sitcom and Star Trek retreads. Belo, with big plans to upgrade KIRO's local news programming, was left with a mere rhinestone to add to its diamond-studded crown.
There would be a price to pay, and, Dunbar is arguing in his lawsuit, Decherd decided that Dunbar would bear it. In court documents, Dunbar argues that Decherd decided to slash in half the commission Belo owed Dunbar for bringing the deal together.
After deciding to chop Dunbar's commission, Dunbar's suit alleges, Decherd set out to convince the broker of the wisdom of that change--whether Dunbar liked it or not.
In the ensuing argument, Belo came down on Dunbar like a size-15 Doc Martens boot on an ant. Dunbar claims he never agreed to a revised contract which would have cut his commission, never signed a new contract, and never even spoke to Decherd after September 1994.
Belo wired a check for $812,500 to Dunbar's bank account and now argues that Dunbar's failure to return the money or to voice any displeasure with the agreement implies that he accepted the cut in his commission.
The allegations in Media Brokers Inc. vs. A.H. Belo Corporation have not been reported in Dallas' only daily, or by any other Belo-held newspaper or TV station. Nor did Belo mention the lawsuit in its most recent quarterly Securities and Exchange Commission report. In the mandatory filings, corporations must disclose legal actions pending against them if the outcome could substantially affect the company's bottom line.
Dunbar's suit is only for $800,000, mere pocket change, hardly worth mentioning for a company of Belo's girth.
But it's a debt owed as far as Dunbar is concerned, and his lawsuit offers rare insight into Belo's big-footed way of doing business.
Dunbar's Dallas attorney, Jeffrey Tillotson, says the case has become a matter of principle for Dunbar, who declined to discuss the case with the Dallas Observer.
"It's like buying a house," Tillotson says. "If you agreed up front to pay a broker a certain amount for finding you a house, and he delivered, should you suddenly be allowed to cut his fee if you changed your mind? My client figures this is worth fighting for."
The world of media brokerage is small, with few hard-and-fast rules for making contacts and shopping properties around. It's a classic sales hustle, where who you know seems to matter almost as much as what you know. So when Charles Dunbar, through casual conversations with executives at Bonneville International Corp. in Salt Lake City, learned the company might be interested in selling its last two TV stations (Bonneville owns several radio stations, including two in Dallas--KDGE-FM and KZPS-FM), he figured all he needed was an introduction to the top man at A.H. Belo--Robert Decherd.
It was late July 1994, and just a few weeks earlier Belo had acquired WWL-TV, the CBS affiliate in New Orleans, for $110 million. Dunbar reasoned--correctly, as it turned out--that Belo, which hadn't made a major broadcasting purchase for 10 years, was poised for a buying binge. Decherd had told reporters shortly after the New Orleans deal closed that it was "not an isolated acquisition."
Looking for an entree to Decherd, Dunbar turned to his own son, Gregory Dunbar, who was a social acquaintance of the Belo honcho. Though Gregory Dunbar didn't know what specific properties his father wanted to discuss with Decherd, the son set up a meeting of the three men in Decherd's office on July 29, 1994, according to depositions on file with the court.
(Belo representatives, including Decherd and in-house attorney Marian Spitzberg, did not return calls to the Observer for this story. Paul Watler, the lawyer representing Belo in the case, also did not respond to a request for an interview. Ironically, Watler is the current president of the Freedom of Information Foundation of Texas. Consequently, all of Belo's responses in this story are taken from public court pleadings and depositions.)
The men's initial meeting lasted less than an hour. Decherd initially appeared uninterested in acquiring the two stations Dunbar was shopping. "A lot of the conversation was that [Belo] had no particular interest in buying a television station outside of a geographic distance from their existing properties, if they were too far, they would have no interest in [them]," Dunbar recalled in a deposition. But near the end of the discussion, Dunbar named the specific stations in question--KIRO and KSL. Suddenly, Decherd was moved, according to Dunbar's deposition.
Dunbar came to the meeting with rare knowledge of Bonneville International's holdings. A few years earlier, Dunbar had represented Cardinal Communications--his other son Geoffrey's company--in its purchase of KAAM-AM from Bonneville. After the purchase, Cardinal changed the station's oldies format to sports talk, and the call letters to KTCK, The Ticket.
It may have dawned on Decherd that the elderly man sitting in his office had insight into a corner of the business world that Decherd did not: the notoriously private and successful media dealings of the Mormon Church. No one knows precisely the worth of the church's vast media operations--all privately held--but through his earlier negotiations with Bonneville, Dunbar was able to get a fairly good idea.
From his working papers generated through talks with Bonneville senior vice president Bruce Reese, Dunbar determined that Seattle's KIRO was grossing $49 million a year, while Salt Lake City's KSL was grossing approximately $29 million. Reese had optimistic projections for increasing the cash flow for both stations--$14 million more for KIRO and $7 million more for KSL.
At the same meeting, Dunbar presented Decherd with a standard agency contract he had used for years in other similar deals. Using a sliding fee scale based on the sale price of the property, Dunbar proposed receiving 1 percent of the acquisition price up to $160 million; 1/2 percent if the price was $200 million or more; and a pro-rated percentage if the purchase price fell between $160 and $200 million. (Dunbar says the men had discussed compensation of 3/4 to 1 percent.)
Over the next month, the proposed Belo-Bonneville deal churned and changed almost daily. On August 5, Decherd, Dunbar, and Ward Huey Jr., president of Belo's broadcast division, flew to Salt Lake City for discussions with Bonneville executives.
After initial small talk with Bonneville president and CEO Rodney Brady and executive vice president Bruce Reese, the group went to lunch. The Bonneville bosses were apparently none too quick to discuss a deal.
"We concluded on the basis that they were not going to provide us any information about the two television stations, that there was nothing to discuss with respect to KSL or the acquisition of KSL, but that if we wanted to make an offer for KIRO they would entertain such an offer just as a matter of stimulating further discussion," Decherd said in a deposition.
The Belo gang trouped back to Dallas with little to go on. It was after the Salt Lake City meeting, according to Dunbar's court pleadings, that Belo moved to cut Dunbar out of the deal and Decherd began chasing the acquisition on his own.
"We went back to Dallas and, using Mr. Dunbar's presented numbers, speculated about the television station and the market and making an offer," Decherd said.
Decherd and the Belo executives decided to make quite an offer--$150 million initially for just one station. Decherd's pitch for KIRO was substantially higher than the offer Dunbar had proposed. Decherd attached some conditions to the offer, namely that KIRO would remain a CBS affiliate, and that Belo would retain first rights to buy KSL for the next two years, should Bonneville decide to sell it.
Like a peacock with tail feathers spread, Decherd and his generous offer turned Bonneville's head. Those heretofore hard-to-get Mormons could not refuse him.
"The general premise was that we were going to make an offer which would attract the attention of Bonneville," Decherd said in his deposition.
The strategy worked. Belo and Bonneville negotiated furiously between August 5 and 26, ultimately arriving at a sales price for KIRO of $160 million, plus some miscellaneous real estate costs that were involved. The final acquisition price came to $162.5 million.
On August 26, Decherd and Brady signed a letter of intent sealing the deal. Decherd had paid more than he originally offered, and got less for the money. Belo, for instance, ended up waiving its one hard-and-fast requirement that KIRO remain affiliated with CBS, and by January 1995, the Seattle station was hitched to UPN. The clause allowing Belo later to purchase Salt Lake City's KSL was also dropped--a move that held no surprise for those who monitor Bonneville's interests. KSL, though extremely valuable as the consistently highest-rated local station in the market, is also the mouthpiece for the Mormon Church, carrying live broadcasts of its semi-annual conferences, inspirational programs, and other official public meetings.
"The Mormon Church has a huge sentimental interest in holding on to KSL. It would be a real shock to hear they even contemplated selling it," says Vern Anderson, a news editor for the Associated Press in Salt Lake City who regularly reports on the church's business dealings.
And indeed, Robert Johnson, current executive vice president for Bonneville, says KSL was never for sale. "KSL was not then, nor has it ever been for sale to Belo or anyone else. We get offers almost monthly. It is not for sale," Johnson says.
Tillotson, Dunbar's attorney, believes Decherd came out of the KIRO deal stinging. Though the final deal was all of Decherd's making, Decherd reacted by deciding to cut Dunbar's commission.
"Belo went out and cut their own deal and paid more than they expected. Now they want Mr. Dunbar to suffer for it by cutting the fee they owe him," Tillotson says.
"Dear Chuck: "We are on the 50-yard-line and driving, and we would not even be on the field except for your idea of approaching Bonneville. All of us at Belo are very grateful for the role you have played in this prospective transaction."
Decherd's sports metaphor-laced letter reached Dunbar by fax on August 31, 1994. It had an eerie, Jekyll-and-Hyde quality--seeming at first to be complimentary of Dunbar's skills, only to switch tone almost immediately.
"I thought through our agency agreement again over the weekend," the letter continued. "Our agreement contemplated a closing on a transaction involving both KIRO and KSL but did not specifically anticipate a single-station acquisition. Since the value of KSL would clearly exceed $40 million under any scenario, the proposed $160 million price for KIRO puts the brokerage fee at 1/2 percent, or $800,000. The agency agreement would continue to cover KSL at the same 1/2 percent level.
"Chuck, if this analysis is consistent with your understanding of our discussions, please sign below and return a copy of this letter to me by facsimile."
Beneath Decherd's signature was a blank for Dunbar to sign, underneath the words "understood and agreed."
A handwritten cover letter from Decherd put a finer point on Decherd's desire to cut the fee Belo would pay Dunbar.
"Chuck," Decherd wrote, "...I still feel this is the appropriate approach, especially given the dynamics that have evolved in this particular transaction. Our (Belo's) understanding was always predicated on the notion of a higher brokerage percent being paid for both stations being delivered at a very attractive (low) total price. Also, the 1/2 percent rate would apply to any purchase price adjustment vis-a-vis the real estate provision in the letter of intent.
Dunbar, reading the fax in his Florida office, shuddered. This, he says in his deposition, was his first clue that Decherd planned to substantially alter their arrangement. Until he received the fax, Dunbar testified, he had not spoken to Decherd or any other Belo representative about the negotiations with Bonneville.
"So you're telling me this was a bolt out of the blue?" Belo attorney Paul Watler asked Dunbar in a later deposition.
"Yes sir," Dunbar replied.
Watler: "Did it anger you?"
Watler: "Why did it anger you?"
Dunbar: "Well, this is my feeling. After he had signed a letter of agreement with the Mormons and he knew the deal was solid, he then renegotiated, from his side, and reduced the fee from one percent to a half of one percent."
Decherd's proposal to half the brokerage commission made Dunbar nervous, so he asked Decherd for a promissory note for all or part of the fee. "I asked him for a promissory note because I said I was concerned about the fact that I'm of the age that I am and that at my age you just never know what's going to happen. And I wanted to have something that my wife could have," Dunbar recalled in a deposition.
In a phone conversation regarding the note, Dunbar testified in depositions, the question of the $800,000 arose. "[Decherd] told me that this amounted to a half of one percent and he's right, it was a half of one percent, and as far as I'm concerned it was a partial payment."
Ultimately, Dunbar testified, Decherd did provide a promissory note for half the fee. Dunbar says he hoped that Decherd "would keep his word and pay me the full one percent."
The two documents--the 50-yard-line fax and the promissory note--are key to both sides of the case. Lawyers on both sides say the question of breach of contract turns on what was revealed in the documents, and how both men responded to them.
In his pleadings, Belo attorney Watler argues that by failing to refuse Decherd's new offer, either in writing or verbally, Dunbar implicitly agreed to accept the lower commission. Watler argues his client's case is even stronger considering that after Belo wired $800,000 to Dunbar's bank, Dunbar did not refuse the money.
Watler also claims that Belo fulfilled its contractual obligation because the original agreement was built on the notion that Dunbar would broker the sale of two TV stations. Even though Belo learned early in the negotiations with Bonneville that KSL would not be sold, its appraised value, combined with KIRO's worth, would have vaulted the stations' sale price to more than $200 million. The logic is that the higher price would have brought the lower commission for Dunbar.
Tillotson, Dunbar's attorney, says his client never agreed to any change in the original commission agreement, so the first contract still stands. And Decherd's account of the promissory note incident differs markedly from Dunbar's. Decherd testified that it was Dunbar--not him--who drew up the promissory note, and that Decherd then forwarded the document for "modifications" to Belo's legal department.
"We like to do things simply," Decherd said at the time.
"He didn't ask for the money to be wired," Tillotson says. "He didn't cash the check. This was a unilateral decision on Belo's part." And a unilateral change of heart, Tillotson argues, does not a new contract make.
Mike Lynn, Tillotson's partner in the Dallas law firm Lynn, Stodghill, Melsheimer & Tillotson, was the original attorney on Dunbar's case when it was filed in 1995. In a motion for summary judgment 10 months ago, Lynn did not take kindly to Decherd's efforts to coax a fundamentally different agreement out of Dunbar.
"Belo has never wanted to pay plaintiff the full amount and has continually tried to pressure plaintiff into agreeing to cut its commission in half," Lynn wrote. "Plaintiff has steadfastly refused to do so and so now Belo has taken a new approach: Belo now contends that a promissory note--in which Belo agreed to pay to Charles Dunbar $800,000--somehow extinguished or otherwise modified the obligations of the parties under their written agency agreement."
Both parties have asked that state District Judge David Godbey issue summary judgment in the case. Both motions were denied. In the 15 months since Dunbar filed his case, two file jackets at the courthouse have grown fat with more than 1,200 pages of legal papers. At one point, Watler filed a motion asking that the case be thrown out, arguing that the suit is frivolous--a waste of time and court resources. That motion was also denied.
So far, neither side appears in the mood to settle the case.
By the time a jury hears the facts of Dunbar's lawsuit, ownership of KIRO-TV in Seattle will be a fading memory for the A.H. Belo Corporation. Because Belo will acquire a KIRO competitor--KING-TV--in its Providence Journal purchase, Federal Communications Commission rules require Belo to sell either KIRO or KING.
For Belo, choosing which station to unload wasn't exactly nuclear physics. According to May 1996 Nielsen ratings, NBC affiliate KING ranks first among the city's eight television stations and holds 19 percent of the local viewing market. By contrast, KIRO ties with another station for third place in the ratings, and has only 10 percent of the market.
Considering Belo's Midas touch image, the short history of its KIRO ownership may be the only real blight on the company's storied reputation for pushing its TV stations to the top of almost every market. Of the seven stations currently owned by Belo (not counting the new stations from the Providence Journal deal), five--including WFAA in Dallas--consistently rank first in their respective markets. KXTV in Sacramento ranks No. 2 among nine area stations.
It isn't as if Belo didn't give KIRO a valiant effort. Immediately after stockholders approved the purchase from Bonneville on February 1, 1995, Belo newscast guru Marty Haag--the man widely credited for spit-shining WFAA and other Belo news operations--put in six months' hard time in Seattle to polish up the product.
The transition did not go smoothly, says Chuck Taylor, who covers electronic media for The Seattle Times.
"Haag wanted everyone to know he was making his imprint in rebuilding that news operation," Taylor says. "Mercurial would be a good description of his personality. Most of the staff went along with him. Some had a harder time."
When Taylor discusses Belo's impact on Seattle media, it is with clear respect.
"KIRO lost its CBS affiliation in March 1995, and suddenly Belo was faced with a UPN affiliation in mid-season," Taylor says. "They had to fill a lot of gaps after they lost CBS and grab what syndicated material they could."
But Haag also pursued a tested Belo tactic--jamming the station with massive blocks of news broadcasts. Eight hours of local, live news each day, in fact, which is virtually unheard of for an independent station, Taylor says. "I don't think any other station comes close to the amount of news coverage Belo does out here."
The broadcasts, not surprisingly, reflect the sober, gray-bearded, kindly uncle image that Belo is known for. "In promotions, they call themselves the 'Spirit of the Northwest,'" Taylor says with a snicker. (Sound familiar, Dallas?) And indeed, when Decherd announced the KIRO buy at a September 1994 press conference in Seattle, he noted in his best, "family-first" voice: "You will not find blood, guts, gore, and ambulances on Belo television."
The biggest question engulfing KIRO now is who will buy the station from Belo--a move that, with the Providence Journal deal awaiting only formal shareholders' approval, will happen any day now, Taylor says. "There's a real air of tension at the station," he says. "The talk is about Viacom or Fox taking over, but no one knows for sure. People are nervous about what's in store."
But the future state of KIRO is surely the furthest thing from Belo bosses' minds these days. They are standing before the biggest acquisition in their history, eyes popping, rather like a bunch of kids viewing the vast loot pile under the tree on Christmas morning. When Belo shareholders give the company the nod on February 19 (Providence Journal investors will have their own vote that same afternoon), they will own a stake in one of the largest daily newspapers on the East Coast and 13 new television stations, all in respectable U.S. markets.
Besides KING in Seattle, the list includes the top-rated stations in Portland, Honolulu, and Boise. The remaining properties--in Spokane, Charlotte, Albuquerque-Santa Fe, and Tucson--rank second, third, and fourth in their markets. But Belo, surely, is already working to remedy that.
It's a veritable Belo blitz of the nation's TV market. The broadcast possibilities--and the potential profits--are enormous. A.H. Belo Corporation is now in the big time.
But still, there is Dunbar, who will be watching from the wings during the uncorking of the Dom Perignon. There is still that pesky matter of the $800,000 he's fighting to recover--a symbol, he thinks, of the nasty, take-no-prisoners way that Belo does business.
"Chuck Dunbar is a simple, stand-up guy who brought a whole business deal around to Belo," says Tillotson. "And when it served them, they just cut my client out altogether. He did what he said he would. All he wants is what's owed him.
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