February 18, 2010

"Is InstaPundit for sale, you ask? A better question: Who would buy it?"

Glenn Reynolds reacts to the sale of the blog Hot Air. I don't really understand what it means to sell a blog that has its character by virtue of a particular writer's voice (or, in the case of Hot Air, 2 writers' voices). It's especially incomprehensible when the person pocketing the money — Michelle Malkin, who owned Hot Air — is not the writer of the blog. Or does it make more sense that way? Ed Morissey and Allahpundit were paid by Malkin — I wonder how much — and now they will be paid by Salem Communication, which operates the poorly designed, ad-cluttered site Townhall.com.

Presumably, Ed Morissey and Allahpundit will retain the motivation to keep writing in the same way, but what if they don't, or what if they leave? What do their contracts look like? Presumably, they can't go off and start a new blog, taking their readers with them. But if Malkin is the one who got the money, and they are the ones who provide the entire substance of Hot Air, then how did Salem protect its interests? If Ed and Allah's writing is so valuable, wouldn't they be open to better offers? If they take them, where does that leave Salem?

Anyway, I've never wanted to be paid by someone to write my blog. I've turned down offers, because I'd be afraid of what that would do to my motivation. I wouldn't want to be constantly thinking about whether I'm writing because I have something to say and I'm having fun or because I need to give value for the money. (This doesn't mean I don't want to make money. I do! I just want the incentive of owning my own business. I make money through BlogAds. And I accept PayPal contributions from readers who want to give me, say, $10 now and then to show their appreciation.)

56 comments:

AJ Lynch said...

I hope Uncle Sam doesn't yet know about these pay pal "donations" aka taxable income! Heh.

MadisonMan said...

That's what she said!

Ann Althouse said...

@AJ I have always paid my taxes. I have never failed to declare income.

littlebeartoe said...

The Hot Air acquisition price was both (1) far less than you're likely to guess and (2) far more than it's worth. But I'm only speculating based on experience and cynicism. We'll never know.

AJ Lynch said...

Althouse;

That is the correct response! [you never know who is reading the blog heh].

Graham Powell said...

Readers aren't like business clients. You can't be barred from taking them with you if you go. So if Ed or Allahpundit actually do leave, their readers will go with them.

I never read AP before HotAir, but I used to read Ed all the time, and if he left I'd follow.

Expat(ish) said...

Ann, I thought you went to lawschool? Didn't they talk about non-compete's? Simplest thing in the world.

And I'll also be willing to assume that the "sale" was in fact what in my industry is called a "work out" - you get payments as goals (readership, pageviews, etc) are met over 1-3 years.

I don't know why buying a blog is different than buying a record company - maybe the residuals are different but it's the same model in many ways.

-XC

spongeworthy said...

Non-compete's are almost completely unenforcable in my state, but that's the right thinking. No way that or any other blog gets sold without those writers under contract and a work-out. And when those writers agree to contract their talents they get paid.

Fred4Pres said...

Allah is not even tweeting on the Hot Air sale.

Joe said...

How would a blog non-compete work? The one’s I’m familiar with are Subject/Time/Geographic Area limited….you can’t do “X” within “Y” kilometers of a place for “Z” amount of time. Except on the Internet there’s no boundary….Here is the same as there….and why would AP or Ed sign a non-compete? They’re employees, I can see Malkin signing, or being required to, preventing her from creating another HotAir, but how do you limit Ed and AP?

oldirishpig said...

This is an aspect of corporate buy-outs that I've found quite interesting over the years. Do they purchase a company because it's successful or because they want access to the customers? For instance, here in the Lafayette/West Lafayette area, there was a national grocery chain that closed its stores while a local chain managed to grow to 5 or so locations. The national chain came back, bought the local chain, kept the name, brought in their own products and then dumped all the features that made the locals stand out. I have no idea if this has been worthwhile for the national chain but I never go there anymore(in particular because they stopped making their own donuts). Why? The groceries are still in business, but what was the point of this purchase?

former law student said...

I wonder how long the HotAir folks will be happy with Salem. As a radio broadcaster, Salem is notoriously beyond frugal. Originally best known for its Christian stations that make money by renting airtime to preachers, more recently, Salem added a string of conservative talk stations. More recently they have operated the Townhall.com website.

Further, radio stations are not exactly profitable at this moment, as big groups like Citadel are going through Chapter 11.

former law student said...

what was the point of this purchase?

Management always has to look like it's doing something.

For years I had a credit card through a particular bank. Then, after Bank of America took over, they quit offering that credit card. Later, they bought MBNA, sending me "we want you back" junk mail ever since. Why did you leave me to begin with?

Charlie Martin said...

Golly I hope this is Socratic disingenuousness.

Michelle gets paid because she was the owner of Hot Air. Ed and AP get whatever their contracts with Michelle say they do — I'd not have wanted to take this on without some equity participation, but oddly, they didn't ask my advice.

Ed and AP go with the blog because they're employees who have been taken up by the new owner, and given Townhall, I think Salem needs them.

They stay as long as they're happy. Salem probably writes a contract like it does with its zillions of other content providers, which sets a term of the contract, and payment and performance terms for both sides. That might include a non-compete of some sort, as Conan O'Brian famously had with NBC.

There is a whole body of contract practice and precedent, as well as law, covering this kind of contract. Ask around the law school; someone there has probably heard of it.

AlphaLiberal said...

See: wingnut welfare.

It's the Washington Times model used by it's owner, the Rev Sun Myung Moon.

They operate a lot of their media in the red as long as they get to "catapult the propaganda."

former law student said...

They stay as long as they're happy. Salem probably writes a contract like it does with its zillions of other content providers, which sets a term of the contract, and payment and performance terms for both sides. That might include a non-compete of some sort, as Conan O'Brian famously had with NBC.

So they signed a new contract with Salem? Then they deserve whatever happens to them.

There is a whole body of contract practice and precedent, as well as law, covering this kind of contract. Ask around the law school; someone there has probably heard of it.

If Malkin had merely sold her end of the contract, the Thirteenth Amendment would be more relevant.

vw: unfie -- obsolete way to express approval "Unfie on you!"

ken in sc said...

Some radio stations use bogus names for their DJs--or used to at least. That way if a popular DJ leaves for a rival station, listeners have a hard time following him because they don't know who he is.

LarsPorsena said...

"It's the Washington Times model used by it's owner, the Rev Sun Myung Moon.

They operate a lot of their media in the red as long as they get to "catapult the propaganda."

Sounds like the New York Times business model to me.

rhhardin said...

Jewish World Review has been good for many TownHall columnists, with nearly zero of TownHall's light-dimming content overload.

Michael said...

Like most private business sales we will never know the methodology used to value the business. Generally speaking a multiple of earnings before depreciation, amortization and income taxes but after normalizing expenses such as putting in salaries when the sellers worked for nothing. These multiples are two to three times the adjusted earnings number on the low side to five to six or more on the high side depending on the strategic value of the acquisition. In many cases "earn up" possibilities exist where the seller can get bonus payments for the business if it performs better than projected in future years. this works when the seller stays behind to manage on behalf of the new owners. When an employee situation exists as in the case of Hot Air, the remaining writers/executives are likely given a new contract and probably get not only retention bonuses but a piece of any upside going forward. The non-competes usually have a separate payment attached to them depending on the tax implications and the jurisdiction. That is the value of also having some form of earn up since the departing/selling party wants to be around for a possible extra payday.

By the way, it is common for some personal expenses to be run through the business to depress the earnings for tax purposes. These expenses are extracted from the profit and loss statement to give the seller the benefit of a bigger bottom line for valuation and pricing purposes. As noted it the bottom line has been inflated by not charging salaries or rent then those expenses are "pushed back" into the operating statement.

Flexo said...

I'm still at a loss to understand how websites have any value at all, such that they could be sold. Or how Google has any intrinsic worth.

I would have thought that the whole experience with the AOL purchase of Time-Warner would have demonstrated to everyone that these dot coms consist of little more than "hot air." Unlike a grocery store chain, which has actual physical assets, websites are nothing more than pixels on a screen (the writers of the site being separate from the website itself).

AJ Lynch said...

Michael has provided us with an excellent overview of a typical deal! Nice job.

Trooper York said...

A married couple are down in out in Barack Obama's America. They decide that the only way to survive is for the woman to go out and prostitute herself on the avenue.

She spends all night going from car to car and finally comes back and hands her husband Three dollars and two cents.

He freaks out."Two cents! Who the hell paid you two cents?"

"Everybody" she said.

Ann Althouse said...

What's with the tweaking me about "non-compete's"? I said "What do their contracts look like?"

And get your apostrophes right before you take a swipe at me.

edutcher said...

I can see a blog as a brand name. Glenn injects his personality into his as you do in yours. The other equation, besides being paid to blog, is letting someone else do the work and you collect the royalties. It says something for your integrity that you couldn't sell your soul, as it were.

After the Civil War, New York Life approached Robert E. Lee and asked if they could you his name in endorsements in their advertising. "That would mean I was selling you my good name", he said and the company agreed. "Then, sir, I cannot allow it".

You could do worse than be compared to the man who scouted the pedregal at Cerro Gordo.

Ann Althouse said...

@AJ I have always paid my taxes. I have never failed to declare income.

That's what Evan Bayh is saying about his wife these days.

Ann Althouse said...

"They stay as long as they're happy. Salem probably writes a contract like it does with its zillions of other content providers, which sets a term of the contract, and payment and performance terms for both sides. That might include a non-compete of some sort, as Conan O'Brian famously had with NBC."

Yes, but deal with the fact that Malkin got the money. What did Ed and Allah get? How were they roped in? I'm curious about how the deal was structured. The blog is nothing without Ed and Allah, but Malkin got the money. How much? What was it worth as an empty shell? Maybe a lot. I don't know. I'm curious. Spare me the "there's a whole body of law" bullshit. It's not comparable to NBC dealing with Conan, quite obviously.

Now, rewrite these comments that just take a disrespectful hit at me. Douchebags.

David said...

Michael says:

By the way, it is common for some personal expenses to be run through the business to depress the earnings for tax purposes. These expenses are extracted from the profit and loss statement to give the seller the benefit of a bigger bottom line for valuation and pricing purposes. As noted it the bottom line has been inflated by not charging salaries or rent then those expenses are "pushed back" into the operating statement.

Common for personal expenses to be run through the income statement? Michael, I don't know what you do, but either you are misinformed or you hang with lowlifes. Running personal expenses through the income statement to reduce taxes is illegal and fraudulent and can result in serious tax penalties and jail time.

My clients knew that this practice is illegal and risky. I rarely saw this abuse in many years of law practice with many successful small businesses.

Maguro said...

Ed has a post up at Hot Air about how they negotiated their deals with Salem. No idea if it will work out or not.

Trooper York said...

Douchebags?

Hee.

Michael said...

David: You have obviously not purchased any private companies owned by individuals or families. Nor, does it seem, do you have much familiarity with the beneficence of the tax code nor with the concept of add backs and push backs in small business valuations. There are plenty of expenses that a buyer will not undertake and which can be added back to the income statement. Plenty of personal expenses such as meals and entertainment are subject to abuse. Your clients I can assure you were not immune to the temptation of hiring family members for unnecessary tasks, running automobiles through the income statement, attributing some travel to business etc. Hopefully none of this will come as too much of a surprise to you or otherwise offend your sense of the way the world works. I am not, by the way, suggesting that I approve. I am suggesting, however, that I am not willing to pay for John's proceeds from the sale of his vacation home as business income for his widget company. That will be taken out of the income statement. If he has hired his sister as his assistant at a stupid salary I will add that expense to the bottom line.

Pastafarian said...

I would imagine that the deal wasn't done before the two writers agreed to sign a covenant not-to-compete, and that they were paid an inducement to sign it, and were signed so some sort of mutually-binding long-term contract.

If the two writers' performance drops off for some reason, I'm sure that the contract allows the new employer to buy them out and replace them. And the two writers would probably try pretty hard to keep that from happening, since they've (presumably) signed a noncompete.

But the whole thing does seem a little odd; a blog does seem a little ephemeral and intangible to sell. I guess one revenue stream is as good as any other.

So I can see Althouse's point; and I agree that some of the commenters that assumed she'd never heard of a noncompete were a little douche-y.

LonewackoDotCom said...

Regarding Insty being for sale, he recently posted a letter from a "reader" about a Heinlein book and - through some coincidence or something - the link to Amazon in the reader's letter had Insty's affiliate code (meaning he makes money if people click the link and buy the book).

I also wonder about his linking habits; for instance, he certainly seems to like popsci, popmechanics, thedailycaller, and thefrisky. That doesn't mean he's getting paid to send them people or anything of course. It's just odd how he likes those sites.

Regarding Ed Morrissey and AllahPundit, no price is low enough.

Joe said...

Regarding Ed Morrissey and AllahPundit, no price is low enough.

Jealous much?

AllenS said...

If Michelle Malkin made a million dollars off of the sale of the blog, that would make her a LOSER!

Loser, loser, loser!

AllenS said...

The more I think about it, there are two ways of leaving this world successful. Having a million dollars or oweing a million dollars.

David said...

Michael: Just exactly what is the point of ascribing ignorance to someone who does not agree with you? Grow up.

The tax code is not beneficent to those who cheat. What you described is cheating, pure and simple.

Ethics question: When you represent a seller of a business whose owners have filed incorrect tax returns via improper deductions, what is your disclosure obligation to the buyer? What advice should you give the seller regarding their still open tax years? Since you are aware of a crime, what is your obligation to the public?

LonewackoDotCom said...

Joe: if you're going to accuse me of something, at least be man enough to use some sort of permanent identifier, such as a real name, a domain name, or an organization name.

I used to contribute to one of Malkin's blogs and if I'd wanted to I probably could have continued. I don't agree with a lot of the things she says, but she's not on my enemies list.

So, it's not jealousy, it's the fact that Morrissey is - and always has been - a complete r/w establishment stooge and AP isn't much better.

Back in the day it was all about fighting the power. Neither of them - nor Insty nor the vast majority of bloggers - have the integrity to do that even if they could identify the power in question.

kathleen said...

I was wondering the same thing, i.e. why are they paying Malkin? maybe this is just Malkin wishing to appear mogul-esque when in reality she got, what, maybe 20 grand? It could be just an ego thing, i.e. as a condition of the sale name me as the owner and payee, to make her seem more like a playah

Joe said...

Joe: if you're going to accuse me of something, at least be man enough to use some sort of permanent identifier, such as a real name, a domain name, or an organization name.

Gee why do I have to do that, Lonewacko(ff)?

Back in the day it was all about fighting the power. Neither of them - nor Insty nor the vast majority of bloggers - have the integrity to do that even if they could identify the power in question.

And what power, pray tell is that? Obviously you know, or think you know, or the voices told you or something....

Richard Dolan said...

"What was it worth as an empty shell?"

Well, it wasn't an empty shell. It was an ongoing business, generating money through ads (presumably). As part of the due diligence, the buyer would normally check the contracts, contact the key players (if their staying was important to the buyer) and work out those details, etc. In the usual deal, the price would be a function of historical earnings, and whatever multiple would be applied would depend, in part, on what the buyer thought it could do with the property.

I wouldn't assume that all of the money in the transaction went to Malkin. If keeping the writers was important, it would be normal to reach a deal with them that would motivate them to stay around going forward.

The more interesting aspect of the story, at least to me, is that Malkin had a media property that found a willing buyer. For many media properties today, the owners couldn't get anyone to take it if they gave it away. If you factor out the real estate, for example, the NYT couldn't give the Boston Globe away -- its operations are worth less than nothing.

Joe said...


I was wondering the same thing, i.e. why are they paying Malkin? maybe this is just Malkin wishing to appear mogul-esque when in reality she got, what, maybe 20 grand? It could be just an ego thing, i.e. as a condition of the sale name me as the owner and payee, to make her seem more like a playah
or more...or less...tell me what was the value of the last Internet property you sold, to anyone?

But, of course, as the owner, she IS the payee, Kathleen. She IS a "play-uh" The question is how big was the game?

Michael said...

David: I was a buyer and had all the profit and loss and balance sheets audited by my own accounting staff. I think you are the one who ought to grow up by the way since you seem to think it illegal for a private person to hire a relative and pay them from the company till. Ask your dentist why he drives a vehicle designated as a truck. You might consider a second career in the IRS or as a preacher.

kathleen said...

what's your point Joe? I never said she didn't deserve *any* money. I just note that the announcement made a point of designating her the owner of the website, as if she is some incredible bigshot just for owning a website.

I haven't sold any websites, but why that's relevant to the discussion I have no idea. There are other ways to make money in life.

David said...

So Michael, you bought one business and you generalize conduct from that? You are digging yourself deeper.

I was a lawyer. For over thirty years, with hundreds of transactions.

Almost invariably, in my experience, the most successful people were the most ethical.

Success flows from reliability which in turn is greatly enhanced by lawful and ethical conduct.

LakeLevel said...

I have it on good authority that Hot Air is the #3 political web site. That's gotta be worth some serious moola. Ed and AP get paid well to write about whatever they want, where-ever they happen to be. Sure they don't jump on every right wing meme to come down the pipe. Why do you think they are so popular?

Joe said...

I haven't sold any websites, but why that's relevant to the discussion I have no idea. There are other ways to make money in life.
So why write this?

maybe this is just Malkin wishing to appear mogul-esque when in reality she got, what, maybe 20 grand? It could be just an ego thing, i.e. as a condition of the sale name me as the owner and payee, to make her seem more like a playah

You seem to think she got little money and this is all an ego stroke...well we don't know, do we? But I don't think it's fair to discuss it so dismissively, do you?

We do know that the Daily Kos has a 6 or 7 figure budget...so working in the New Media does involve a considerable opportunity to at least burn thru money....So why woudn't Malkin make more than 20K? And why belittle it?

Have you done anything like this, take an IDEA from only an idea to success and then onto sale to another entity? It's a neat progress whether it netted her $2 or $200,000....

Der Hahn said...

I'd just like to throw out the observation that there is a difference between owning a 'domain name' and owning a 'website', though in informal conversation the two are sometimes used interchangable.

Nobody would say that the Jeff Bezos is a nobody who just happens to own a website called amazon.com.

'www.hotair.com' is simply a domain name. To turn it into a website you need to rent or buy computer hardware, software, and get somebody with the expertise to run them on board. You need to hire somebody to produce the content (Ed and AP), and if they are even moderately busy they are likely to need help with research, copy editing, and general gofer duties.

If you read Ed's post (linked to above) it sounds like MM's involvment in Hotair.com was providing the technical and logistic support, as well as editorial and business advice.

So she's not just being 'designated owner' of the website, she had a real role in keeping hotair.com up and running.

kathleen said...

"But I don't think it's fair to discuss it so dismissively, do you?"

uh...yeah. Yeah I do.. and in any case I'm not being dismissive. Why so personally invested in my perceived dismissiveness? get a life Joe. think what you could be doing instead, like taking "an IDEA from only an idea to success and then onto sale to another entity" [sic]

Michael said...

David: Not to be tiresome but I bought in excess of fifty small companies, all privately owned over a couple of decades. I negotiated and/or passed on an equivalent number. I know what I am talking about.

Joe said...

uh...yeah. Yeah I do.. and in any case I'm not being dismissive.

Which is it, you ARE or are NOT being dismissive....logic or at least explanation of the logic doesn't seem to be a strong point here.



Why so personally invested in my perceived dismissiveness? get a life Joe. think what you could be doing instead, like taking "an IDEA from only an idea to success and then onto sale to another entity" [sic] I just wondered why the need to be dismissive? It seems a bit silly, actually. If you haven't done it you really can't afford to be dismissive, can you?

And if YOU HAVE done it, then I'd thik you'd be apreciative of the effort it took. You might question the scale of the effort or the wisdom of Salem's purchase. Or wonder will HotAir change or under what terms Ed and Allah moved over...but if you've ever done something like this, you'd think you'd appreciate the effort involved.

So my guess is, you've not taken something from idea to re-sale, and there's a degree of ignorance or envy involved. But that's just a guess.

LarsPorsena said...

"Ann Althouse said...

@AJ I have always paid my taxes. I have never failed to declare income."

This disqualifies you from ever being appointed Secretary of the Treasury.

Graham Powell said...

As for the question of what a website is worth, the buyer is not buying a domain name, or pixels on a screen, they're buying the reputations of Allahpundit and Ed Morrissey. They're paying based on what they expect those guys' future writing to be worth.

After all, most established novelists sell novels based on just an outline. The rest of the book is in there heads. You can't get much more ephemeral than that.

Graham Powell said...

*their* heads. Apparently my vocabulary is ephemeral, too.

kathleen said...

Joe, maybe your understanding of logic is the problem. but if it makes you feel better... three cheers for Michelle Malkin! she built a website and sold it! woo hoo! applause!

is that better?

Jake said...

Wow... such a simple deal, such a lot of hot air!

littlebeartoe said...

So much hot air; so few numbers!

I'll dive in. The price was $25k in cash, and the structure included all of the obvious things for both sides (non-competes, assumption of debt, etc.)

Ann, David, Michael? Jump in with your guesses! The water's fine!