Reason to Question

Is the Bay Guardian's lawsuit against SF Weekly connected to Bruce B. Brugmann's unfortunate business judgments?

It was October, I was in New York City on business, and I was trying to respond to phone messages asking for comment about a lawsuit that the San Francisco Bay Guardian had filed here in San Francisco against the Weekly and its parent company, New Times Inc. I hadn't seen the lawsuit, but from what newspaper and television reporters were telling me, it seemed like warmed-over jabbering, a recycling of hyperbolic nonsense that Guardian Editor/Publisher Bruce B. Brugmann had tossed into the public arena more than two years earlier and then, seemingly, abandoned.

So why now, I wondered. What could be so pressing, so distressing, so urgent, now, that Brugmann would want to wade into the unpredictable and expensive swamp of litigation, in the process reminding the world, yet again, that his paper was losing key advertisers? What could it be?

A few months down the road, I think I'm in a position to offer reasonable thoughts about a possible answer or two to that question.

In January 2002, Thomas Burke, an attorney representing the San Francisco Bay Guardian, wrote a letter warning SF Weekly and New Times that they had engaged in anti-competitive and purely evil business practices aimed at driving the innocent and benighted Bay Guardian out of business. In the pompous prose that is the paper's unofficial trademark, Guardian Executive Editor Tim Redmond subsequently hinted at legal retribution to come if the Weekly and New Times did not mend their ways.

In October 2004, the Bay Guardian filed suit against the Weekly and New Times (and, for reasons that puzzle me, the East Bay Express, which is part of the New Times group but does precious little business in San Francisco), charging, as Redmond wrote in awkward excitement, “that the nation's largest alternative newsweekly chain had illegally sold advertising below cost in an effort to put the family-owned Bay Guardian out of business.” Redmond claimed that New Times and its two Bay Area newspapers had sold ads “below the cost of producing them” and “offered secret deals to some advertisers” to keep them from advertising in the Bay Guardian. These actions constituted violations of unfair-business-practices laws instituted in the “progressive-reform era of Gov. Hiram Johnson,” Redmond wrote.

It was a David-vs.-Goliath story line that fit the Bay Guardian's self-image to a T: Here was a feisty, local, progressive, independent, saintly, and otherwise perfect weekly newspaper and its progressive, independent, saintly, perfect owner bravely standing up to the conscienceless, rapacious monopolists of soulless chain journalism.

It was a story that echoed a glorious past: More than 30 years ago, the Bay Guardian sued the San Francisco Chronicle and San Francisco Examiner over conscienceless, monopolistic behavior called a joint operating agreement — and won a big settlement!

It was a story that, in my opinion, followed in the finest traditions of Bay Guardian journalism: It presented less than the full truth in a misleading way.

While attempting to convince San Francisco that New Times was driving it out of business, the Bay Guardian forgot to explain that Bruce Brugmann had taken a multimillion-dollar plunge into commercial real estate, and had done so during one of the worst advertising recessions in recent history. In the Guardian's story of victimization, there was no room for its own penchant for selling ads at highly discounted rates.

And then there's that whole family-newspaper shtick. You know, the shtick that plays up Brugmann and his wife, but never mentions the Guardian's other owners, including the multimillionaire real estate mogul and his heiress wife.

If it didn't occur to him before then, Bruce Brugmann could have realized he is not a real estate genius on Dec. 21, 2001. That was the day when a stipulated judgment was entered in San Francisco Superior Court, ordering the Bay Guardian to pay one of its then-landlords $100,000. The judgment came after the landlord sued the Bay Guardian, claiming it had agreed, by e-mail, to pick up an option to extend the lease of 4,900 square feet of space at 540 Hampshire St. but then tried to renege on the deal. In the end, the Guardian agreed to pay $20,000 immediately and $2,500 a month until the $80,000 remainder of the judgment was paid.

Back then, the bulk of the Bay Guardian operation was housed next door, at 520 Hampshire. The Guardian had been paying about 70 cents a square foot each month for a 14,000-square-foot space, or a total of less than $10,000 a month, the landlord told an SF Weekly reporter in mid-2001.

In other words, during the salad days of the late 1990s, as the dot-com boom swelled Bay Guardian coffers with full-page ads, the Guardian was paying bargain-basement rent. But that rosy financial situation had changed by the time the paper's 10-year lease expired in May 2001. The Bay Guardian needed to secure long-term office space. Even though the dot-com bust was beginning to drive down costs, office rents were still above what the Bay Guardian was used to paying.

Meanwhile, the summer of 2001 came to an end, and al Qaeda scrambled the American consciousness by flying airliners into skyscrapers. The U.S. economy — especially the tourist economy on which San Francisco is so dependent — went into its own nose dive and stayed down, as 9/11 airplane attacks were followed by anthrax-laden letters, an invasion of Afghanistan, and a steady stream of warnings by John Ashcroft that more bad things would happen, soon. Very soon.

Advertising — the lifeblood of newspapers, particularly free-circulation newspapers such as the Bay Guardian and SF Weekly — slowed dramatically. It was anyone's guess as to how long the 9/11 recession would go on, or whether the economy would ever get back to where it had been before the World Trade Center towers fell.

Bruce Brugmann decided it was time to borrow millions of dollars and go into the real estate game.


The news was full of debate about a possible invasion of Iraq when the Bay Guardian's lawyer sent the letter warning SF Weekly that its purely evil business practices were driving the Guardian out of business.

Three months later, in April 2002, amid an economic downturn that had, according to widespread news accounts, caused newspapers to lay off employees in near-record numbers, Bruce Brugmann and his wife, Jean, bought a renovated warehouse building at 135 Mississippi St. As a vehicle for the purchase, they used the newly formed Brugmann LLC, a real estate holding company. The purchase price was $4,737,000, according to public records, almost all of it borrowed; financing came through Placer Sierra Bank in Roseville, Calif.

The building contains about 26,000 square feet of usable space spread, mostly, over three stories. The Bay Guardian leased space on the first and second floors in the building. Mondo Media, an entertainment, design, and digital production studio that has been a pioneer of Internet animation, was an upstairs tenant, and it agreed to remain after the purchase. The Guardian announced that it completed its move into the building on June 28, 2002.

“What Bruce [Brugmann] has always wanted for the Guardian is a building that we own, that is ours in perpetuity, so we never have to worry about an eviction, we never have to worry about a bad landlord, we never have to worry about any of that stuff,” Redmond was quoted as saying in the summer of 2002. “We now have a place that's ours, that will anchor the Guardian as part of San Francisco forever.”

Just as homeownership benefits most families, it can indeed be a good thing for a business to own its own headquarters. Real estate costs are fixed; no pesky landlord can come along to raise the rent. As the mortgage on the property is paid down, the business gains equity that can be borrowed against or used, in other ways, to aid the growth of the firm. So long as the firm is careful not to borrow more than it can afford, the upside to ownership can be great.

Here, though, Brugmann went from paying extremely favorable rent in the mid-1990s to carrying almost $5 million in debt less than a decade later. Because he borrowed the down payment of $1.3 million though a Small Business Administration loan program, it appears that Brugmann had virtually no equity to speak of in the deal.

And I can't help but point out, of course, that the San Francisco Bay Guardian's version of “progressive” ideology runs almost exactly 180 degrees counter to the pro-ownership sentiments expressed in preceding paragraphs. The Bay Guardian has for decades prayed at the altar of the glorious tenant. In the circles of Bay Guardian hell, landlords occupy some of the lowest rungs, where they presumably chat with PG&E executives. Tenants and tenant advocates, meanwhile, have permanently reserved thrones in the Guardian's progressive heaven.

But even if Bruce Brugmann's jump into commercial landlordism is ironic — and boy is it — I have no problem with the San Francisco Bay Guardian owning, rather than renting, its offices. (Several New Times papers, in fact, own the buildings in which they operate; SF Weekly leases.) But in certain situations, buying real estate can be wrongheaded and dangerous, and boy, does this look like a wrongheaded, dangerous situation to me.

Just a few short years ago, when office rents in San Francisco were rivaling and even exceeding those in Manhattan, the Bay Guardian was enjoying amazingly low rent, less than $1 a square foot per month at a time when new leases in the complex where SF Weekly resides touched $6 a square foot. A seat-of-the-pants estimate that errs, I think, on the high side puts the Guardian's total rent in the $190,000-a-year range as late as the final years of the dot-com boom.

As anyone who has bought a house can tell you, there are costs of ownership above the mortgage. There is maintenance, there is insurance, there are taxes, there are utilities beyond what the tenants pay for — and the list goes on. And Brugmann LLC didn't just buy the house that the Guardian had been living in. It bought a building that is 30 percent larger than the paper's old home, as well as an adjoining parking lot. A real estate analysis conducted for SF Weekly suggests that Brugmann LLC's costs for carrying the 26,000-square-foot building at 135 Mississippi are somewhere, depending on interest-rate assumptions, in the $500,000- to $600,000-a-year range — or hundreds of thousands of dollars a year more than the newspaper had been paying in rent.

Of course, when a real estate investor buys rental property, he hopes to keep his property filled with renters whose payments will service the loan on the property and cover its other costs, from taxes to maintenance and beyond.

A chunk of the carrying costs for the property have been paid for the last few years by Mondo Media, the digital animation and production firm that has had offices on the third floor of the 135 Mississippi building. But several sources make it clear that Mondo Media will soon be moving from the building.

Last week, the commercial real estate advisory firm of Grubb & Ellis was listing 9,778 square feet of space for lease on the building's second and third floors, including the space now occupied by Mondo. The asking rent was $15.50 per square foot, per year, on what is known as an “industrial gross” basis that, I am told, generally means the tenant is responsible for electricity and janitorial services. An agent has described the office leasing market in that part of town as slow.

Simple multiplication suggests that a failure to fill the space with a paying tenant or tenants would blow a $150,000-a-year hole in the budget for carrying the building at 135 Mississippi. [page]

Such are the worries that dog commercial landlords on a regular basis. Are they the kind of worries that spur struggling newspaper owners — owners who have jumped into the financial dark and found it scary — to file lawsuits and launch self-serving propaganda offensives in hopes of a settlement that provides a cash windfall?

I'd say it's reasonable to wonder.

It is all but impossible for me to describe the incredulity with which the Weekly's ad sales staff greeted the Bay Guardian's lawsuit against the Weekly, the Express, and New Times.

Essentially, the suit claims that New Times' Bay Area papers have discounted ads below the cost of printing the newspaper pages that carry them, using profits from other New Times papers to cover the resulting losses, and offered secret deals to keep businesses from placing ads in the Guardian. This chicanery, the Bay Guardian claims, has stripped it of advertisers, forcing it into a financial corner.

To understand the outrage of our ad salespeople at the Guardian's claim, you would have to have been at my side, listening to salespeople mutter about the Guardian's pricing policies.

For a long time, I took the complaints with a grain of salt (only newspaper reporters, I've come to learn, bitch more than newspaper ad salesmen) — until the Guardian filed its lawsuit. Then I challenged some of the bitchers: If it was really the Bay Guardian that was cheating, I said, prove it.

They did. And did and did.

An exquisitely absurd example they showed me involved a food service establishment that I won't embarrass by naming.

Here's what happened: The Bay Guardian offered a 1/5-page ad to the food establishment. The offer, as recounted in writing by the food establishment, went this way: The establishment would pay $250 a week over the life of the contract, plus $50 in “trade” (meaning that Bay Guardian personnel could eat their way through a $50 tab at the establishment each week for free). The establishment would get a 1/5-page black-and-white ad, plus one color (ordinarily something that costs extra). Also, the ad would be “upsized,” for free, to 1/4 of a page eight times during the year.

At SF Weekly, the food establishment had been paying $327 a week, plus $50 in trade, for a black-and-white ad a little bit smaller than what the Guardian offered. In other words, the Bay Guardian undercut our prices by $4,000 over the course of a year (not even counting the upsize and color giveaways) on a single small ad.

Now, this is a less than brilliant way to do business; it's also absurd. Here's why: The Guardian's discount price for the aforementioned food establishment ad translates, in a positive analysis, to $1,500 for a full page of advertising. In its lawsuit, the Guardian claims SF Weekly has been violating the law by selling ads for less than the cost of producing the pages they sit on. And what was the cost to produce a page of advertising that the Bay Guardian posited in its very own lawsuit? It was $1,700. In other words, the Guardian sold this account at less than its own estimate of the cost. Now that's absurdity for you.

But not quite exquisite absurdity.

No, the exquisitely absurd facet of the Bay Guardian's food service ad discount involves its timing. This fire-sale offer for ad space was pending — according to the advertiser's written account — after the Bay Guardian filed its lawsuit alleging the Weekly was engaged in dastardly discounting practices.

In my opinion, the least reasonable discount I ran across involved a massage parlor. In a 52-week advertising agreement I've seen, the Guardian offered the parlor a one-column-wide-by-2-inch-deep ad in the paper's adult section for $42. A Weekly ad rep said he didn't even try to match the rate, noting that the lowest he'd be allowed to go for such an ad would be $150, or more than three times what the Guardian charged. The rep said the parlor was allowed to extend the ad for another year — at the same giveaway rate. For those of you who are counting, over two years that's an $11,000 revenue gap between our rate and theirs.

If it's giving away ads to take business from the Weekly, no wonder the Guardian's hurting.

I could probably fill the rest of this issue's news hole with sales rep tales of silly Guardian discounting. But I won't. Instead, I'll just wonder at the exquisite absurdity of it all.

When the Bay Guardian sues us for supposedly rapacious discounting while it, actually, is dramatically undercutting us in price, does it mean that the owners of the Guardian realize their ad reps can't sell an ad in the paper without resorting to money-losing discounts and have undertaken a lawsuit as a sort of Hail Mary financial play? Or has Bruce Brugmann become so used to depicting himself and his paper as saintly and progressive that he really and truly cannot tell fact from fancy?

Some people offer the events from a glorious past as a partial explanation for the litigation and ensuing propaganda offensive the San Francisco Bay Guardian has launched against the paper I edit. In his story on the lawsuit, Redmond harked back to 1970, when the Guardian filed suit against the San Francisco Newspaper Agency over the legality of a joint operating agreement between the San Francisco Chronicle and Examiner. The suit, Redmond wrote, “asserted that the monopoly daily combine was using its market power to destroy smaller competitors.” The $500,000 settlement the JOA paid was, Redmond noted, the money that allowed the Bay Guardian to go from twice a month to weekly publication.

It's the quintessential Bay Guardian story line: Independent, progressive, family-owned newspaper takes on the powerful corporatists — and wins! [page]

Even some people I know who despise Bruce Brugmann offer this tale from the past as explanation for the present. In their eyes, Brugmann is trying to relive his glory days, to cement his place in local lore with a win over (and a chunk of money from) the out-of-town heathens of New Times.

But I'm not willing to indulge this kind of pop psychologizing. I think the explanation is unreasonable, because I think it plays into Bay Guardian fantasy, and leads away from facts and truth. In the Brugmann fantasy of a progressive, saintly, and perfect Bay Guardian, a small, family-owned business is always fighting a David- and-Goliath struggle against corporate monsters.

But how defenseless and family-owned is this particular entity, really? What about the 10 people who apparently aren't members of Bruce Brugmann's family and who've been listed recently as owners of 1 percent or more of the Bay Guardian? What about the multimillionaire real estate investor with the heiress wife?

In an October 2002 “Statement of Ownership, Management and Circulation” filed with the U.S. Postal Service, the Bay Guardian listed 13 people as owning at least a 1 percent interest in the paper. (The statements are required of publications that receive discounted postal rates; a mailing requirements clerk told me the 2002 statement was the last the Guardian filed, and its periodical authorization was suspended in 2003.)

The ownership list includes just first initials and last names. Three of the names appear to be members of Brugmann's family.

One of the other names is D Werby. I believe this “D Werby” is Donald Werby, who with his brother Robert Werbe built a real estate fortune that at one time included ownership of a dozen hotels, among them San Francisco's historic Clift Hotel. They also developed Gramercy Towers, a residential complex near California and Taylor streets, and held ownership in the San Francisco Gray Line bus tour company. Donald Werby (he reportedly changed the final “e” to a “y” because his wife preferred the spelling) died in the summer of 2002, which means the postal statement filed later that year came after his passing. Robert Werbe died late in 2004.

I called Donald Werby's son, Todd Werby, an executive at one of the companies the brothers owned, Grosvenor Properties, and asked him if the D Werby on the postal statement was his father; he said it was. When I asked the size of his father's stake, and whether it had passed down to him, he demurred. “Why don't you ask Bruce?” he said.

Donald Werby had a strange and interesting life. His wife, according to a wire report, was one of three daughters who survived William Black, the founder of the Chock Full o'Nuts Corp., a coffee, baked goods, and fast-food firm that had annual sales of $115 million in the year before his 1983 death.

Donald Werby was also a friend of and patron to Anton LaVey, the public face of the Church of Satan, helping him remain in the church's headquarters, the infamous Black House on California Street, during his declining years. Werby's civic standing fell after San Francisco police raided a Mission District brothel in 1988. According to the Chronicle, Werby was subsequently indicted on charges of having sex with prostitutes, some allegedly underage, and giving cocaine to juveniles. He pleaded guilty to four charges involving teenage prostitutes and was sentenced to community service and a $300,000 fine, the Chronicle reported.

I think it's reasonable to ask who — beyond the real estate magnate and heiress — really owned and owns the newspaper that is filing pot-kettle-black lawsuits while claiming progressive sainthood. Brugmann responded to my requests for an interview in this way:

“Our attorneys have reviewed your questions and have advised me not to comment at this time because of the predatory pricing suit. They also point out that the Bay Guardian has had written discovery served on SF Weekly/East Bay Express/New Times since last year. New Times has not yet responded, and so to start providing answers now would distort the orderly discovery process in the litigation.”

Here are eight other names on the postal ownership statement:

W Broder

H Dakin

L Dawson

K Perez

A Robinson

W Roth

M Russell

G Weinberg

I can't imagine how it would distort any orderly processes if someone other than Bruce Brugmann called in and let me know who some of these folks are.

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