Two years ago, when he sealed a deal to buy the Chicago Reader and Washington City Paper, Creative Loafing chief executive Ben Eason was on the cusp of his biggest move ever — creating a Tampa-based company that would be the country's second-largest alternative newspaper chain.
Today, Eason faces a Tampa bankruptcy judge and is fighting to retain control of the company his family founded more than 30 years ago.
"A lot of people want to say, 'coulda, shoulda, woulda,' " said Eason, admitting that borrowing $40 million to buy the two publications right before the newspaper industry crashed was bad timing. "But July in 2007 was the peak of consumer confidence. It was a completely different media and economic environment."
The latest challenge Eason faces is a hearing today on the rules for an Aug. 25 auction set up to help cut the company's debt, made possible when the largest creditor, New York hedge fund Atalaya Capital Management, agreed to reduce the amount of its loan from $30 million to $12 million.
Now that an auction is at hand, Eason fears Atalaya could pay itself back the lion's share of any bid it makes, allowing the hedge fund to pledge more than any competitor, including him, could afford for Creative Loafing's six newspapers. Representatives for Atalaya did not return calls for comment.
"What you'll see is the judge grappling with a core issue: How do you preside over a fair auction where one of the bidders has an advantage that would cause others not to bid," said Eason, who is working with past investor BIA Digital Partners to help fund his bid. "It's like pulling money out of one pocket and putting it into another."
Since Creative Loafing filed for bankruptcy in September, Eason has struggled for control of the company with Atalaya.
In March, a bankruptcy judge decided against handing Atalaya outright control of the chain — which has newspapers in Tampa, Sarasota, Atlanta and Charlotte, N.C., along with Washington and Chicago — insisting they develop a reorganization plan together.
Now both will likely face off again during the auction, where Atalaya has already presented a "stalking horse" bid of $2 million. And, depending on the framework decided by the judge, any interested company could join the bidding.
John Sugg worked at the Tampa newspaper, then called the Weekly Planet, for six years before leaving for Atlanta's Creative Loafing in 2001, where he worked until resigning last year. And as a current stockholder who expects to lose money when the auction is completed, Sugg insisted the company's current crisis is rooted in Eason's uneven management style and a habit of keeping the company in debt.
"It was a foolish and reckless decision to buy these papers," said Sugg.
Indeed, the chain has implemented several rounds of cost cutting and staff reductions, most recently laying off senior editor and longtime music authority Eric Snider in Tampa.