Ownership setup aims to invite contributions, foster beneficial goals
The new ownership structure of The Inquirer, the Philadelphia Daily News, and Philly.com will enable the company to seek tax-exempt contributions while preserving the company's editorial independence and mission of taking editorial stands on issues of public importance, experts on nonprofit governance and tax law said Tuesday.
The new ownership structure of The Inquirer, the Philadelphia Daily News, and Philly.com will enable the company to seek tax-exempt contributions while preserving the company's editorial independence and mission of taking editorial stands on issues of public importance, experts on nonprofit governance and tax law said Tuesday.
Under the new ownership announced late Monday, Philadelphia Media Network will come under the umbrella of the Philadelphia Foundation, a tax-exempt organization whose donors themselves will be able to reap tax benefits while directing funds to the news company, which will remain a for-profit entity.
At the same time, PMN also will be able to seek working capital from outside investors.
"I think what they are trying to do is move the newspaper into a new ownership structure that will better accommodate the lower profits, or even the nonexistent profits, of newspapers today," said Lisa Merrill, a tax and business lawyer with the Center City-based firm Duane Morris.
Strictly speaking, The Inquirer, the Daily News, and Philly.com will be owned by the Institute for Journalism in New Media, itself a subsidiary of the Philadelphia Foundation.
The institute, operating under a special assets fund, will be the conduit for tax-exempt donations to PMN for specific purposes, but it is not obligated to fund operating losses, said Richard Fox, the tax lawyer at Dilworth Paxson who helped design the new ownership agreement.
Business decisions will remain with the PMN board and senior managers. The two newspapers and Philly.com will remain "fiercely independent," said publisher Terrance C.Z. Egger.
The model chosen by H.F. "Gerry" Lenfest, owner of PMN before donating the company to the newly created institute, is one with few precedents in American journalism.
The nonprofit Poynter Institute for years has owned its for-profit subsidiary, the Tampa Bay Times in St. Petersburg, Fla.
That ownership structure was devised by Nelson Poynter, then owner of the Times, not out of an urgent need to create a new economic model - his paper was enormously profitable. Rather, his goal was to preserve its editorial independence and to avoid inheritance taxes.
The New Hampshire Union Leader in Manchester, the Anniston Star in Alabama, and the New London Day in Connecticut also are owned by nonprofits.
But there are few other examples in U.S. journalism, said Rick Edmonds, media-business analyst at Poynter.
"So the advantage is that the new ownership is committed to good journalism, and that is the first order of business," Edmonds said of PMN's new structure.
As part of the complex restructuring, Philadelphia Media Network became a public-benefit corporation, a designation that commits the company to pursuing certain socially beneficial goals and helps to preserve its editorial independence, said Jean Hemphill, a partner at the law firm Ballard Spahr who specializes in business, health care, tax-exempt organizations, and other matters.
Given the purpose of pursuing publicly beneficial goals, such so-called B corporations are protected from demands by shareholders that they maximize profits. PMN is registered in Delaware.
"I think it is exciting," Hemphill said, "because having vigorous journalism, whether through a newspaper or electronic media, in any big city is critical to good governance, and newspapers, as we all know, are challenged to be profitable."
Why not simply convert The Inquirer, Daily News, and Philly.com into a tax-exempt, 501(c)3 organization that could directly take in tax-exempt contributions?
Merrill, of Duane Morris, said newspapers that take strong editorial stands on issues of public importance, endorsing political candidates or advocating for various public policies that might be deemed political, likely would not qualify under IRS rules for tax-exempt status.
She noted, "501(c)3s are really restricted in their political activities."
Of the new ownership agreement, Fox said: "It's the best of all possible worlds."
By remaining a for-profit corporation, the company avoids IRS restrictions on political advocacy. Yet it also can access tax-exempt contributions and funds from outside investors, Fox said.
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