Pot meet Kettle - Gawker

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This is rich! From National Review:
Gawker and Bain and the Caymans
Gawker has an interesting headline up: �Inside Mitt Romney�s Tax-Dodging Cayman Schemes.� The gossip site also has released some 950 pages of material related to Mitt Romney�s investments, mostly having to do with Bain Capital. In Gawker�s own words: �Together, they reveal the mind-numbing, maze-like, and deeply opaque complexity with which Romney has handled his $250 million fortune.�

Most respectable publications maintain a fairly strict church/state division between the editorial side and the business side, and Gawker, a not very respectable publication, seems to do the same. Apparently, nobody thought to tell the boys on the Romney beat that Gawker Media is part of a shell company incorporated in the Cayman Islands. Gawker�s money lives in the same neighborhood as Romney�s money. Call it bipartisanship.

As John Cassidy relates in The New Yorker, Gawker�s finances are �organized like an international money-laundering operation.� For example:
Much of its international revenues are directed through Hungary, where [bossman Nick] Denton�s mother hails from, and where some of the firm�s techies are located. But that is only part of it. Recently, [Felix] Salmon reports, the various Gawker operations�Gawker Media LLC, Gawker Entertainment LLC, Gawker Technology LLC, Gawker Sales LLC�have been restructured to bring them under control of a shell company based in the Cayman Islands, Gawker Media Group Inc.

Why would a relatively small media outfit based in Soho choose to incorporate itself in a Caribbean locale long favored by insider dealers, drug cartels, hedge funds, and other entities with lots of cash they don�t want to advertise? The question virtually answers itself, but for those unversed in the intricacies of international tax avoidance Salmon spells it out: �The result is a company where 130 U.S. employees eat up the lion�s share of the the U.S. revenues, resulting in little if any taxable income, while the international income, the franchise value of the brands, and the value of the technology all stays permanently overseas, untouched by the I.R.S.�
So we have evil offshoring � exploting those poor marginalized Hungarian nerds � baroque tax-minimizing schemes, assets that will not be repatriated because of U.S. taxes, and that favorite sin of the Left: hypocrisy. In my mind, hypocrisy is a lesser sin than stupidity, and it is sort of stupid to write up a breathless account about Romney�s doing the precise same thing your company does. Incidentally, there is nothing in the Gawker report or the accompanying documents suggesting that Romney or Bain did anything improper. And neither did Gawker, for that matter: U.S. tax practices create very powerful incentives to pursue avoidance strategies. Gawker�s owners apparently know that, even if its writers lack the guts or the intellectual capability to acknowledge as much.
All right for me but not for thee. Let's see their tax returns for the last ten years -- did they pay their income taxes? How abuot Nick's personal returns? Hmmm??? The New Yorker article quoted above has this to say:
Gawker Stalker: Nick Denton Spotted in Cayman Islands
Taking a break from the thousands of pages of documents related to the 2008 bank bailout that the Fed released yesterday�more on them later�I indulge my reprehensible weakness for media gossip, perusing a six-thousand-word post by Felix Salmon, the financial blogger, about Gawker Media. In addition to being an excellent advertisement for restricted word counts�and Salmon�s Stakhanovite work ethic�the post contains quite a bit of stuff that was news to me. (And, no, I don�t mean all that guff about Gawker redesigning its home page to feature one lead story. Stop the presses: Nick Denton, a former newspaper man, discovers the front-page splash.)
The Felix Salmon link above shows it being down for maintenence. Fortunatley, we have the Internet Wayback Machine -- from December 1st, 2010:
The new Gawker Media
Gawker Media�s big company-wide redesign, a year in the making, will finally come out of beta on January 3. It will the biggest event in Gawker Media history, for all three arms of the company�editorial, sales, and technology. It�s a concerted attempt for Gawker Media to stop being a blog network and start being something much more ambitious. And while that will be most immediately visible in the way that the blogs look, a massive change is taking place on the sales side, too: Chris Batty, Gawker Media�s semi-legendary head of sales, is leaving the company.

Gawker Media has had more than its fair share of staff turnover, of course. Much of it, especially at the Gawker flagship, has been detailed obsessively in the press. But above the editorial fray, the executive team has been constant all along: Denton, the owner and CEO; Gaby Darbyshire, the general counsel and COO; Tom Plunkett, the CTO; and Batty, the VP of sales and marketing, working alongside the VP of sales, Gabriela Giacoman. Batty�s departure marks the first visible fracture in this team, and is a sign of just how far-reaching Denton�s changes really are.

This is a monster post, so I�ll put the rest below the fold. The stuff about Batty and Gawker Media�s revenues comes near the top, the stuff about corporate structure and valuation is near the bottom.
More:
Gawker Media has been going through a big corporate revamp over the past year or so. The ultimate parent company has never been in the U.S.: it used to be Blogwire in Hungary, but now Blogwire Hungary has become a subsidiary of a Cayman Islands entity called Gawker Media Group Inc, which also owns various U.S. operations like Gawker Media LLC, Gawker Eexploitingaboutntertainment LLC, GawkemaintenanceFortunatelyr Technology LLC, and Gawker Sales LLC. (And what, exactly, is, or was, �Nick Denton Engineering�?) It�s unclear how many Cayman companies there are (I think there�s just the one), how many corporate entities there are in Hungary and the U.S., and whether there also might be companies in other jurisdictions. Only three people know for sure: Nick Denton, Gaby Darbyshire, and John Duncan�a lawyer whose official bio says that he�s an expert in corporate governance and taxation, as well as a graduate in Slavic languages.

What is clear is that most of the value of Gawker Media Group is to be found in the Hungarian subsidiaries�since it�s the Hungarian companies which own Gawker�s technology and its intellectual property. The main company there is Blogwire Hungary Szellemi Alkot�st Hasznos�t� Korl�tolt Felelőss�gű T�rsas�g, which translates as Blogwire Hungary Intellectual Property Exploitation LLC; it came into being on October 1, 2002, and was officially registered on December 10 of that year. Denton has Hungarian citizenship (his mother, Marika, was Hungarian), which helped in terms of setting up the Hungarian company and getting associated tax breaks. I�ve put Blogwire�s most recent reported earnings�for 2007�at the bottom of this post, which were retrieved by the wonderful Sandor Peto in Budapest; they show a net profit of $82,080 on pre-tax earnings of $93,273 and total revenues of $479,480, which include $15,996 in �revenues from financial transactions.�

The Hungarian companies get all of Gawker�s international income, which flows in from 13 different salespeople in ten different countries and which, since it�s international income flowing to a Hungarian company owned by a Cayman Islands parent, is basically pure profit which never comes close to being taxed in the U.S. The result is a company where 130 U.S. employees eat up the lion�s share of the U.S. revenues, resulting in little if any taxable income, while the international income, the franchise value of the brands, and the value of the technology all stays permanently overseas, untouched by the IRS.
Emphasis mine -- don't cry about Romney's investments lest they come home to bite you in the butt...

1 Comment

Nice catch, Dave!

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This page contains a single entry by DaveH published on August 23, 2012 6:32 PM.

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