November 2017 Advocate: Injunction filed to stop sale of KCSM-TV
THE SELL-OFF OF KCSM-TV
Broadcast spectrum speculator LocusPoint files injunction to stop sale of KCSM-TV
By Tracy Rosenberg, Executive Director of Media Alliance
(The Media Alliance, at media-alliance.org, is a Bay Area democratic communications advocate. Tracy fought a lonely war to save KCSM-TV between 2011 and 2013.)
On October 24, LocusPoint Networks, a subsidiary of the Blackstone Group, the largest hedge firm in the world, filed an injunction to block the sale of KCSM-TV to KRCB/North Bay Public Media. The filing in San Mateo Superior Court can be read here. No date has been set yet for the injunction request to be heard.
LocusPoint had been subsidizing the operations of the television station by paying the SMCCD $900,000 a year since 2013, an amount that totaled about $3.3 million dollars. The payments were in exchange for 36.5% of sale proceeds in the FCC spectrum auction, which were estimated to be as much as $114 million dollars in total.
When the District flamed out of the auction in November 2016 after VP Jan Roecks failed to submit a bid, the District did not offer to return LocusPoint’s $3.3 million dollar investment. As LocusPoint has repeatedly pointed out, the District certified the auction effort was continuing and cashed a final $225,000 subsidy check from LocusPoint – after it knew it had been kicked out of the FCC auction.
According to the LocusPoint filing, no proceeds from the proposed $12 million dollar sale to KRCB will be payable to LocusPoint, despite contractual agreements governing a possible sale of the station should the FCC auction not go forward. That leaves LocusPoint out several million dollars with no recompense, a situation likely not to sit well with the largest hedge firm in the world. The Blackstone Group recently made an appearance in Global Exchange’s list of the top ten corporate criminals of 2017. They occupied the sixth slot on the list.
KRCB, a small station whose annual budget is around $3 million, made out well in the FCC spectrum auction, netting around $75 million from a partial sale of spectrum. Taking advantage of SMCCD’s misfortunes, they are re-investing some of those funds in greatly expanding their audience range. KRCB was essentially the only bidder in a quiet and rapid post-spectrum sale process which featured an RFP that was never publicly posted on the District’s RFP website. The District has refused to provide the names of any other bidders on the 2017 RFP after several public records requests were filed asking for the information, including ones from the Palo Alto Daily Post, Media Alliance and LocusPoint. LocusPoint asserts in their complaint, with some justification, that the sale process was a secretive backroom deal that violated the Brown Act as well as the norms of public asset sales. This appears to be the case. It should be noted Brown Act violations also occurred in other SMCCD efforts to sell the TV station, including the one in 2012-2013 that awarded the station to LocusPoint.
By attempting to proceed with a sale to KRCB without taking steps to protect the College District, the SMCCD is potentially exposed to negative financial outcomes. While they are not fun reading, the lengthy Funding Agreement (Exhibit B) and Put/Call Option contracts (Exhibit C) lay out in some detail the required return of subsidy funds given a triggering event like getting ejected from the spectrum auction. The Put/Call Option provides LocusPoint with approval rights over a buyer and a share of the sale proceeds in the event of sale outside the spectrum auction. The SMCCD position that all 2013 agreements with LocusPoint are null and void because inadequate assistance was provided to help SMCCD staff submit a bid, seems a thin reed to wipe out 35 pages of executed contracts.
The return of $3.3 million dollars in subsidies, a cut of the sale proceeds, attorney’s fees for SMCCD, and possible damage awards for buyer KRCB (which asked for and received indemnification from SMCCD) and plaintiff LocusPoint, could well wipe out any proceeds from the sale of KCSM-TV. At a minimum it would probably reduce the proceeds to less than could have been gained from the sale of the station to a public interest bidder back in 2011-2012.