YOUNG BROADCASTING famously overpaid for KRON San Francisco a decade ago, and has thus far gotten a similarly dubious return on investment for its management deal with Gray TV. Last summer, Gray announced a deal to manage seven of the Young stations for $2.2 million per year, plus incentives. But as a pair of banking groups scrapped for several months in bankruptcy court for control of the Young stations, Young told Gray in December 2009 to keep away from its stations until the judge decided who gets them. Through it all, Young continued to pay Gray its management fee.
Judge Arthur J. Gonzalez ruled last week in favor of what’s called the Debtors Plan—meaning Gray can finally set foot in the Youngowned outlets again. “It’s now back in our court,” said a Gray insider who asked not to be named. “We will be managing the stations.”
Gray had taken initial steps last year, including working on contracts and budgets, with the Young stations, which include WKRN Nashville and WBAY Green Bay, and not KRON. But when a group of unsecured creditors mounted a rival bid to grab control of the entire Young group, Young told its GMs to cease communications with Gray. “They’d started acting like they run the stations,” says one Young insider, “but communications have slacked off to where there is none.”
Gray TV President/COO Robert Prather says weekly phone calls have taken place between Gray and Young. But the management deal has thus far offered little management. “We’ve offered to help, but really have not been actively involved,” he said prior to the ruling.
Gray was just starting to move ahead on the Young stations last week. A conference call was to be held either late last week or early this week to get the ball rolling.
Young had considered attempting to break the contract with Gray if the unsecured creditors had prevailed in court. “Depending on which Plan of reorganization is accepted by the court,” Young said in a statement issued in mid-April, “Gray’s agreement may be terminated according to its terms before any involvement occurs.” (Young executives would not publicly comment on the matter.)
Prather acknowledged the discord in Gray’s earnings call April 8. “They probably would like to not have the agreement, but we have a contract,” he said. “It’s legally binding.”
The deal, which Prather says is good for three years, totaled $600,000 in Gray’s fourth quarter. Prather says Young never approached him about tearing up the contract. “They pay right on time,” he adds.
Young entered bankruptcy in February 2009; it announced 2009 operating income of $19.7 million. Young did not figure the payments to Gray—$874,000 in 2009—into its results.
At long last, Gray will be working for those payments.