Cumulus Seeks To Cancel Contracts

Admittedly I'm no expert on bankruptcy but I didn't know this was even a thing. So in Chapter 11 a company can try to cancel contracts because they paid too much to begin with? To be clear, I'm not criticizing Mary Berner. Hell, I'd use every tool at my disposal just like she is but how would you like to be on the other end of this? Who would pay anything close to what Cumulus did for Merlin Media, especially now? I know, it still has to be approved and may not be.

"ATLANTA, Jan. 18, 2018 (GLOBE NEWSWIRE) -- Cumulus Media Inc. (PINK:CMLSQ) (the “Company,” “we,” “us,” or “our”) today announced that it has filed motions with the United States Bankruptcy Court for the Southern District of New York requesting authority to reject a handful of extremely unprofitable contracts, including those with the Chicago White Sox and the Chicago Bulls. Cumulus is also seeking to reject its agreements with Merlin Media (“Merlin”), as the Company has determined that the legacy terms to acquire WKQX-FM and WLUP-FM in Chicago for approximately $50 million is significantly in excess of the stations’ market value. In total, the Company is seeking to reject fewer than 20 contracts out of more than 15,000 agreements. The Court is scheduled to rule on the Company’s motions at a hearing on February 1, 2018." https://globenewswire.com/news-rele...n-to-Reject-Certain-Uneconomic-Contracts.html

Ultimately it's up to the judge. I'd anticipate he'll rule in favor of canceling the contracts. Interesting that all of the contracts are in Chicago.

Merlin tried to force a "put" on their contract, demanding the company pay them the $50 million before it was actually due. This may be in response to a Merlin lawsuit that was filed a few weeks ago. I'd imagine the company wouldn't mind buying the stations on the other side of the bankruptcy, since they're currently operating with minimal funds. But we all know that some sports contracts are bad deals, especially if the teams suck. And the White Sox haven't done well for years.

TheBigA said:

But we all know that some sports contracts are bad deals, especially if the teams suck.

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Yes they do. I wonder what might happen when some of the long-term deals across the broadcast landscape expire. My guess is that they'll go down but maybe not. Thanks for the additional info.

This particular bankruptcy is proceeding very differently from the Citadel bankruptcy. In my view, the Citadel bankruptcy didn't actually solve the problems the company had, so that when the company was sold to Cumulus, that company then inherited some of the "bad deals" that had caused Citadel to go bankrupt. Having said that, I don't know if Cumulus saw this, and was determined not to make the same mistakes as Citadel. All I know is that when Citadel when bankrupt, it simply renewed all of the sports contracts. Cumulus isn't going that route.

TheBigA said:

Ultimately it's up to the judge. I'd anticipate he'll rule in favor of canceling the contracts. Interesting that all of the contracts are in Chicago.

Merlin tried to force a "put" on their contract, demanding the company pay them the $50 million before it was actually due. This may be in response to a Merlin lawsuit that was filed a few weeks ago. I'd imagine the company wouldn't mind buying the stations on the other side of the bankruptcy, since they're currently operating with minimal funds. But we all know that some sports contracts are bad deals, especially if the teams suck. And the White Sox haven't done well for years.

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Even worse, the new trend in MLB is to go the fire sale route and rebuild completely through the draft and by trading every good player you have for "prospects." This leads to anywhere from 2 to 4 years of truly horrible baseball that no one would want to listen to or support with advertising. When a big-market team like the White Sox decides to employ this strategy, there's some big, big money going straight down the tubes. Of course, when the strategy works -- Houston, for example -- the increased interest when the team finally gets good again may allow the deal to rebound some.

Even worse is extended mediocrity, which, I'd imagine, is why the Bulls contract may be such a burden. Since the Jordan era, they've only been truly relevant in a handful of seasons. When a team just keeps finishing within 10 games of .500 year after year after year, with no sharp improvement, the radio audience just drops away to hardly anyone.

CTListener said:

When a big-market team like the White Sox decides to employ this strategy, there's some big, big money going straight down the tubes.

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In fact, looking at the ratings, you see WLS, home of the White Sox, getting a 1.5 share, while The Score, home of the Cubs, gets a 5. WLS doesn't need the Sox to get a 1.5. They could get that with their talk shows. So yes, that contract isn't very valuable to WLS. They're breaking format, which is a bad idea in the first place, for no good reason.