RANCHO SANTA FE — In a David versus Goliath standoff, the Rancho Santa Fe News is facing the threat of a lawsuit by Anthony Allegretti, president and CEO of MainStreet Communications, which publishes 17 newspapers including the Rancho Santa Fe Review.
The proposed charge is that the Rancho Santa Fe News’ advertising rates are driving the financially backed “Review” out of business, or at least hurting its profits.
On the David side the “News” is owned by independent publisher Jim Kydd and is one of two publications of The Coast News Group. The bimonthly News distributes on demand and mails 10,000 copies to Rancho Santa Fe, Santaluz and the Rancho Pacifica areas.
Kydd said the News is part of a tightknit operation that carefully balances its profits and overhead costs to operate. The paper has no debt service or investment bankers to pay off. Kydd said a skeleton staff and shared operating costs with The Coast News allows the paper to have a minimum overhead.
Kydd said the News could not remain in operation if it was under-pricing its advertisements. He added that they have recently closed papers in Vista, San Marcos and Carmel Valley because they were not profitable.
On the Goliath side, the Review is owned and published by MainStreet Communications, a subsidiary of MainStreet Media Group. It is one of 17 newspapers that MainStreet Communications publishes.
Other area newspapers owned by MainStreet Communications include, in addition to the Review, the Carmel Valley News, the Del Mar Times, the Solana Beach Sun, the La Jolla Light, the Poway News-Chieftain, the Rancho Bernardo News-Journal and the Ramona Sentinel. MainStreet Media Group also owns a group of newspapers in Northern and Central California. MainStreet’s corporate offices are in Gilroy, Calif.
Kydd said the Review has much higher operating costs including editorial salaries as well as financial backers to pay.
Brookside Capital Partners Management works as the investment manager for MainStreet Communications. Managing Director Don Hawks said as a matter of company policy he has no comment on Allegretti’s actions.
Hawks was asked if he was aware of the certified letters Allegretti sent to the News. “I’m not going to comment on those,” Hawks said.
Housatonic Partners is another investment manager for MainStreet Communications and owns 36 percent of the company.
Joe Niehaus, general partner for Housatonic Partners, would not comment on the registered letters sent to The Coast News Group or the proposed lawsuit. “I’m not going to address any of that,” Niehaus said.
Allegretti claims in certified letters that the News caused the Review to lose at least $300,000 in 2010. He further threatened to sue for $900,000 plus attorney fees he estimates at $2 million, if the News advertising rates are not “adjusted” and increased.
“The law Allegretti is quoting is to protect the little guy,” Kydd said. “I don’t have the money to outlast him and his investment bankers and he knows it. He’s the predator.”
Kydd does not know what prices Allegretti charges for advertising. Likewise, he said Allegretti does not have access to the News’ records of pricing or operating costs on which his allegation is based.
Several area attorneys, all of whom declined to be quoted, were asked for their opinions on the charges. All agreed that it is unlikely that the suit will go to court due to the lack of evidence and the disparity in size between the two publishing companies. They added that it is difficult for a large newspaper group to claim that it was hurt by the rates of a smaller paper.
“No one can tell you what price you have to sell at,” one of the attorneys said. He went on to say that any attempt to limit competition is restraint of trade.
Allegretti has reportedly made similar threats to other small papers in San Diego County. While publishers did not want to be quoted directly, some say they have heard around the publishing community that Allegretti recently sent a similar letter to another San Diego County newspaper. He threatened to sue the paper and then offered to buy the paper at a “lowball” price.
The publisher of that paper, who did not want to be quoted, said they consider Allegretti’s proposed lawsuit a bluff, but are fearful that if Allegretti follows through they will not be able to weather the possible court costs, that could run in the millions, to show that there is no merit to the charges.
MainStreet Communications Chief Operating Officer Steve Staloch said he is not aware of Allegretti’s offer to buy any paper at this time. “We’re always interested in acquisitions that make sense, strategic acquisitions,” Staloch said.
When asked about the proposed lawsuits Staloch had no comment. “This is not a news story,” Staloch said.
If Allegretti pursues the lawsuits, his claims could damage the livelihood of two local newspapers.
One longtime local publisher said that instead of basing competition on readership and compelling news columns, Allegretti is basically saying “play ball with me or I’ll spend you into submission.”
“He has the fear factor going for him,” Kydd said. “His package of certified letters is nothing but a scare tactic and also smacks of price collusion.”
Allegretti said he would not speak directly about any proposed lawsuit and did not confirm that that his company is losing money.
“A company can be making money,” Allegretti said. “It’s nothing to do with whether you’re doing well or whether you’re doing poorly. It has to do with the other business. The law says you can’t sell anything below cost.”
Kydd said the charges do not make sense because the News runs a balanced budget with all fully loaded costs, including building rental, utilities and sales commissions.
Kydd and others see the situation as Allegretti trying to leverage his size and multiple publications to eliminate competition.
“It just smells,” one attorney said.
Allegretti insists size does not matter. “The law is meant for all California companies,” Allegretti said. “It’s nothing to do with the size of a company.”
“This is a direct attack against all Rancho Santa Fe advertisers present and future,” Kydd said. “If I were to cave in, he would have no competition in the marketplace.”
Allegretti may be opening up himself and his company for a lawsuit.
“I’m considering suing him for threatening me and suggesting price fixing,” Kydd said. “I think what he’s doing is terribly wrong.”
Get Jim Kydd’s side of the story in his Op Ed:
Op Ed: Publisher says Review seeks to control ad prices in Rancho Santa Fe
by Jim Kydd, Publisher Coast News Group
I rarely get on the pulpit. It takes something really, really wrong to get me going.
Enter Anthony Allegretti, the bully.
He is the CEO of the Rancho Santa Fe Review.
He is bullying me to “fix” my advertising prices to be as high as his are.
This is a direct attack against all Rancho Santa Fe advertisers — present and future. If I were to cave in, he would have no competition in the marketplace.
Here’s what he’s doing.
Last Friday I received a package of documents from Allegretti, who publishes numerous publications here in San Diego and elsewhere.
He is a big-time publisher compared to me and is backed by well-funded investment bankers. We’re talking billions here.
This “nice” package I received from Allegretti dated Feb. 14 — my valentine, I guess — contained a threat to sue me and the Rancho Santa Fe News for a violation of the California Fair Practice Act and various violations of other antitrust legislation.
He alleged I was charging too little for my ads in 2010, thereby causing him to lose money. He said that if I didn’t raise my rates he would sue me for $900,000 (three times his lost revenue) and my legal fees would be around $2 million.
That is his position.
That is also a threat.
I used to have five newspapers. I closed three of them and one office because they weren’t profitable.
If the Rancho Santa Fe News’ low ad rates were causing me to lose money, as his threatened lawsuit implies, why would I keep publishing it?
His “package” is nothing but a scare tactic and also smacks of price collusion. If I were to charge what he wants me to charge for advertising, what happens to “fair competition in the marketplace?” All advertisers will be forced to pay the same rate, which will be set by Allegretti.
I run a tight business and don’t have any debt service or investment bankers to pay off. Allegretti does, so maybe that’s why he has to charge more for his ads.
Maybe he just wants no competition so he can price “gouge.”
In the end, it will be the advertiser that will be hurt.
My only reason for writing this editorial is to expose Allegretti as a mean-spirited scoundrel of a businessman and to warn current and prospective advertisers of his tactics.
I just recently learned that Allegretti served the same Valentine’s Day package to a fellow publisher who competes with Allegretti in La Jolla.
This time he got the desired reaction. Already struggling with the economy, this publisher became very upset that he could face the possible loss of hundreds of thousands of dollars and the cost of $2 million in legal fees.
Here comes the good part.
Allegretti meets with this publisher and offers to buy the competing paper for a fraction of its value or says he will sue.
If you ask me, that is also an unfair business practice and just plain mean.
If he buys it, he will probably close it, creating a price fixing situation much the same as he is trying to do in Rancho Santa Fe. La Jolla advertisers will suffer.
If you currently advertise with the Review, I just want you to know where your money is going — to Allegretti and his investment bankers.
Perhaps when your contract is up with the Review, you might want to give us a call.
Obviously we charge less. We also give more.
In addition to being distributed everywhere the Review is, the Rancho Santa Fe News is mailman-delivered to 1,100 homes in the Santaluz area and 500 homes in the Rancho Pacifica area. The Review leaves these areas out of their circulation.
I am not going to allow Allegretti and the Review to scare me into raising my ad prices.
I’ve consulted a friend in the San Diego District Attorney’s office. I was advised to have my lawyer send a warning to Allegretti and his backers that they should cease any further action. Perhaps they aren’t smart enough to know that what they’re doing is illegal, so my lawyer is currently drafting a letter to them explaining the law.
They are leaving themselves open to some very serious legal ramifications and all advertisers will suffer.