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Reader document sleuth Matt Potter has come up with information that should interest anxiety-ridden Union-Tribune employees. They had cocked their eyebrows in mid-2003 when the parent company, Copley Press, revealed that it had bought two luxury condos in the 11-story Metropolitan atop the Omni Hotel, developed by Padres majority owner John Moores. It seemed to be a favor to Moores; the paper had been a major cheerleader for the City's huge subsidy to the Padres owner, and Moores was anxious to sell the condos atop the hotel. The deal closed in April of 2004 for a price of about $3.8 million. The company said the suites would be combined and used for entertaining. Company owner David Copley had them decorated to suit his grandiose tastes. Now, reports Potter, Copley Press sold the suites to owner David Copley and his trust on Dec. 31 of last year. Price: $5.9 million. The deal raises a number of questions that Chief Operating Officer Hal Fuson would not address either by phone or email over a two-day span. How could Copley Press make a $2 million profit on a condo in the ballpark district? Values there have plunged. Was it a tax transaction? Does Copley Press, which put itself up for sale in mid-2008, have a buyer that doesn't want the suites? That would probably be true of almost any buyer -- certainly one that is publicly-held, or in the case of a group of individuals buying the paper in a private deal. Is Copley Press fattening up its balance sheet through this transaction? Did the suites' price go up $2 million because of the money David spent on furnishing the place? Did a qualified appraiser bless the $5.8 million transfer price? Does it jibe with comparable values in the luxury building? Does David own 100 percent of Copley Press, as most people believe?

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Comments

Burwell Jan. 7, 2009 @ 9:51 p.m.

I don't believe that David Copley purchased the Omni Condos from Copley Press, or that Copley Press received $5.9 million in cash from David Copley. David Copley is likely sole shareholder of Copley Press, a corporation. The transfer of the condo is most likely a dividend distribution from Copley Press to David Copley. Congress lowered the tax rate on dividends from as much as 35% to only 15%. The 15% tax rate expired at midnight on 12/31/2008 and went back to the old 35% tax rate for 2009.

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Don Bauder Jan. 8, 2009 @ 7:17 a.m.

Response to post #1: Possible, but could condos qualify as dividends? Can condos meet the definition of dividends? I stated in the item that it could be a tax maneuver, and you believe it is. But if it is one to take advantage of an expiring dividend rate, I think the IRS could challenge it. Best, Don Bauder

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Fred Williams Jan. 8, 2009 @ 8:50 a.m.

That's surely some kind of freakonomics.

David is paying his own company an inflated price to take over an asset that is guaranteed to drop for the foreseeable future.

Of course, the case has already been made that the newspaper had no business buying it in the first place, so maybe this is a way for David to sweeten the pot for a buyer while removing an unwanted encumbrance.

Whatever.

It's kinky.

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HellcatCopley Jan. 8, 2009 @ 9:40 a.m.

Don, a clarification. I don't think the organization known as "The Copley Press" is up for sale ... rather "The Copley Press" put its subsidiary the "The Union-Tribune Publishing Co." up for sale.

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Burwell Jan. 8, 2009 @ 10:22 a.m.

Any property, including cash or condos, transferred from a corporation to a shareholder is taxed as dividends to the shareholder. When non-cash property is transferred to a shareholder the dividend equals the market value of the property.

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JohnnyVegas Jan. 8, 2009 @ 10:29 a.m.

When non-cash property is transferred to a shareholder the dividend equals the market value of the property.

So what is the market value of the condos as of 12/31/08?

Certainly not 5.9 mil.

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Don Bauder Jan. 8, 2009 @ 11:13 a.m.

Response to post #3: He may have wanted a capital loss in the future. There could be some other tax angle. The profit should boost Copley Press's balance sheet. Best, Don Bauder

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Don Bauder Jan. 8, 2009 @ 11:15 a.m.

Response to post #4: It is the Union-Tribune that is for sale. But with all the assets the parent company has dumped, there is little or no difference between the two entities. Best, Don Bauder

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Don Bauder Jan. 8, 2009 @ 11:18 a.m.

Response to post #5: I am not aware that the tax on dividends goes back to 35 percent in 2009. If that is on the books, it will be changed. I have not read a word on that until I saw your post #1. Best, Don Bauder

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Don Bauder Jan. 8, 2009 @ 11:27 a.m.

Response to post #6: I have never been inside the combined combos -- funny, David never invited me -- so I don't know the value. There may be something we don't know. That's why the item was hedged. But I agree: $5.9 million sounds fishy. Best, Don Bauder

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Burwell Jan. 8, 2009 @ 3:05 p.m.

The 35% tax rate would apply to dividends received by those in the highest tax brackets. In 2009 an investor in the 28% tax bracket would pay a 28% tax rate on dividends. The 15% tax rate has expired and has not been reinstated. The link below supports my analysis:

http://www.nysscpa.org/cpajournal/2004/1004/essentials/p40.htm

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HellcatCopley Jan. 8, 2009 @ 3:42 p.m.

What has become of the James S. Copley Library (located at 7776 Ivanhoe Ave.)?

The library, funded by Copley Newspapers, was founded by James S. Copley in 1966. Its collections include works and research materials on the American Revolutionary War, the Southwest, John Charles Fremont, Jessie Benton Fremont, Robinson Jeffers, Benito Juarez, Abraham Lincoln and Samuel Clemens (Mark Twain), as well as presidential correspondence and limited-edition books.

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Don Bauder Jan. 8, 2009 @ 5:08 p.m.

Response to post #11: I thought the 15 percent rate was extended, at least for ordinary stock investors. I may be wrong. I will have go check, but don't have time now. Another angle: it may have been extended for stock investors but was not extended for closely-held corporations, and that explains the maneuver on Dec. 31. Best, Don Bauder

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Don Bauder Jan. 8, 2009 @ 5:12 p.m.

Response to post #12: I have been trying unsuccessfully to find out about the library. I don't know whether Copley Press or the James S. Copley Foundation owns it. That is important, because it would be a good asset to sell if Copley Press owns the building in which it is housed. However, the space may be rented. I wish I had an answer for you. Best, Don Bauder

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JustWondering Jan. 9, 2009 @ 9:37 a.m.

A simple search of the Ivanhoe address at SD County Tax Assessor website shows the "property" is owned by Copley Family Trust... although there have been some recent changes.

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Don Bauder Jan. 9, 2009 @ 3:22 p.m.

Response to post #15: What have the changes been? Best, Don Bauder

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HellcatCopley Jan. 9, 2009 @ 3:25 p.m.

Copley Press may be laden with assets far beyond the UT. Many people put their homes, yachts, fancy cars, etc. into corporations.

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Don Bauder Jan. 9, 2009 @ 6:35 p.m.

Response to post #17: Possibly the moving of the condos from the corporation to David was an example of getting personal effects off the company books. Best, Don Bauder

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JohnnyVegas Jan. 9, 2009 @ 7:58 p.m.

Copley Press may be laden with assets far beyond the UT. Many people put their homes, yachts, fancy cars, etc. into corporations.

Dont you want corporate ownership as a buffer against legal actions.......... ?

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Don Bauder Jan. 9, 2009 @ 9:44 p.m.

Response to post #19: I think a lot of this discussion hinges on the sale strategy: will Copley Press unload the Union-Tribune and keep the corporate parent as essentially a shell corporation (possibly with some of David's assets inside)? Or will Copley Press be sold along with the paper, or liquidated after the sale? Incidentally, closing a sale will be even more difficult: now the Seattle Post-Intelligencer is on the market, too. Best, Don Bauder

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Burwell Jan. 10, 2009 @ 11 a.m.

There is no market for the U-T or the paper would have been sold by now. The U-T will limp along until it runs out of cash and has no assets left to sell. At that point David Copley will likely face the decision of whether he wants to put his personal assets at risk to keep the U-T afloat, either by direct loans to the company or by personal guarantees of the company's debt. At that point David Copley will probably decide to shutter the paper and it will go out of business. When enough newspapers go out of business all news will initially be reported by hundreds of small internet news operations run out of garages by amateurs like Pat Flannery. Large corporations will be formed to buy out and consolidate the garage internet news operations into large profit making news providers. Carigslist, which is putting the newspapers out of business by using investment capital to undewrite huge losses from free advertising, will start charging and will relentlessly ratchet advertising rates upward to recoup the billions it has lost putting the newspapers out of business.

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JohnnyVegas Jan. 10, 2009 @ 5:28 p.m.

I doubt the UT will fold-it still has circulation power-not what it used tohave-but still plenty to run a metro daiy.

I have listened to your thoughts on Craigsist and it is a very intersting process .

My past readings about Craigslist made it out as a site that makes enough money off of it's employment advertising to float the rest of the site-if it is ringing up losses,as you state, to drive metro daly papers out of business it would be under attack for anti trust violations and unfair business practices- I would imagine.

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Don Bauder Jan. 10, 2009 @ 6:13 p.m.

Response to post #21: Some interesting thoughts you have. The Seattle Post-Intelligencer is up for sale; if it doesn't get a buyer in 60 days it will turn into an internet operation and lay off employees very heavily. The Denver Rocky Mountain News is up for sale, along with the Austin paper and several dailies. (Denver and Seattle are two-newspaper towns that can't carry two papers. I doubt either will be sold.) I don't believe Craigslist is losing billions on the free advertising. It does get money for job ads in certain cities and for some real estate ads. It is registered as a non-profit but may break even or make money. Yes, if dailies start closing down, Craigslist could start charging for more advertising. For daily newspapers, it is a grim scenario. The ink-and-paper business model and technology are out of date. But internet is not profitable. Tough row to hoe.Best, Don Bauder

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Don Bauder Jan. 10, 2009 @ 6:16 p.m.

Response to post #22: If dailies go under and Craigslist boosts its rates, I am not sure there will be antitrust violations. I do think the U-T will be around longer than some dailies. I once thought it had another generation to go. I no longer think so. Things are crumbling fast in the daily newspaper industry. Best, Don Bauder

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Burwell Jan. 10, 2009 @ 8:26 p.m.

Craigslist has a non-profit foundation that advises other non-profits on how to use the internet, but the on-line advertising business could not operate under the guise of a tax exempt organization. EBAY owns 28% of Craigslist and is the primary source of the capital which underwrites Craigslist's continuing losses and financial destruction of the newspaper industry. EBAY could not make a capital investment in or own 28% of a tax exempt organization. EBAY would not have invested in Craigslist unless it expected to make an obscene profit at some point in the future, either through an IPO or outright purchase of the company. The Justice Department should sue Craigslist for anti-competitive actions and force it to charge a fair market rate for on-line advertising. Craigslist should also be broken up into multiple competing companies. No single company should have a nationwide stranglehold on on-line advertising.

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Don Bauder Jan. 10, 2009 @ 9:31 p.m.

Response to post #25: Financial results from eBay have been poor of late. I don't know that it breaks out any data on Craigslist. I would think if this were such a blatant anti-trust violation, someone in the newspaper industry would already have filed a civil suit. Maybe someone has. Do you know of any? By the way, Craigslist is only one of a number of factors killing daily newspapers; I'm sure you know this. Best, Don Bauder

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Don Bauder Jan. 11, 2009 @ 7:40 a.m.

Clarification on my post #23: If the Seattle Post-Intelligencer doesn't find a buyer in the next 60 days, it will go all-internet OR close down completely. I should have made that distinction. Best, Don Bauder

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JohnnyVegas Jan. 11, 2009 @ 5:13 p.m.

Craigslist should also be broken up into multiple competing companies. No single company should have a nationwide stranglehold on on-line advertising.

By Burwell 8:26 p.m., Jan 10, 2009

This applies to any business market- and is one of the big reasons for the market meltdown.

If AIG is too big to fail then it is too big to exist, same goes for CitiGroup and the major financial institutions.

Back in the early 1900's (1908??) Standard Oil (now Cheveron) had 90% of the oil market and because of that moopoly power they were busted into 39 different companies, and over the next 100 years they all merged until we have the 5 major oil companies we have today-which basically puts us right back into the same situation Standar Oil had from the 1860's through 1908, but with an oligopoly, regulators should never let ANY industry consolidate to that level.

And when this happens we get higher prices and lower service levels.

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Don Bauder Jan. 11, 2009 @ 6:50 p.m.

Response to post #28: It wasn't that AIG or Bear Stearns were too big to fail. They were too interconnected to fail. They were on one end of toxic derivatives that, officials feared, could go off in a nuclear explosion worldwide, as other houses on the other ends of those derivatives failed. I will repeat what I have asked: if these officials knew that the unraveling of derivatives could threaten the whole world banking system, why didn't they push for regulation of them a decade ago? Incidentally, regarding the original topic: Copley Press selling those two downtown condos to David Copley. A good explanation is that the IRS may have said they weren't being used enough for entertaining potential customers, their original supposed use. So Copley Press might have been denied a tax writeoff on them, so shifted them to David. Best, Don Bauder

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HellcatCopley Jan. 12, 2009 @ 8:44 a.m.

Maybe David should sell the UT on Craigslist or eBay.

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Don Bauder Jan. 13, 2009 @ 8:51 a.m.

Response to post #31: Well, the firm Copley hired to sell the paper hasn't done its job yet. Craigslist would be full of ironies: it takes money away from metro dailies, then is middleman in the sale of one of the wounded. Of course, Copley could just list the company in U-T classified ads. Best, Don Bauder

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