Long-time readers are familiar with the business analysis and strategy matrix that Political Calculations has used on two occasions (the original analysis and an update) to evaluate the health of Air America Radio and to anticipate what options its senior management might pursue for the radio network. Given the current controversy where it appears that the network may have benefitted from the diversion of earmarked funds that were designated to support the Gloria Wise Boys and Girls Club of New York City, it seems appropriate to look at how the radio network obtained its primary funding. (Michelle Malkin has an excellent roundup of the major developments of the story to date, which has also been covered extensively at Brian Maloney's Radio Equalizer.)

The best single report that I've seen to date that bridges Air America's original funding, as well as it's bailout in May 2004 appeared in the May 27, 2005 issue of the Milwaukee Business Journal in an article by Rich Kirchen: "Madison investor weathered Air America's Storm."

The article follows the story of Terry Kelly, the President of Weather Central, Inc. who, along with his wife, was a principal investor in originally launching the network as well as a major player in its early bailout. As such, Kirchen notes that he was "one of a half-dozen investors in the startup network who lost their initial $7 million outlay to the mismanagement, if not outright fraud, of the original management team."

What follows is a major excerpt from the article, outlining the general history of Air America's financing from Kelly's point of view (links and emphasis added):

The Kellys became involved in Air America in late 2003, as a result of a conversation with acquaintances at the Oakcrest tavern in Middleton. Turns out that one of the organizers of Air America was David Goodfriend, the son of Dr. Theodore Goodfriend, a professor of medicine at the University of Wisconsin-Madison. In December 2003, the younger Goodfriend and Air America's then-CEO Mark Walsh visited Madison to present a pitch to the Kellys.

The couple decided to invest "a substantial amount of money" in the venture, Terry Kelly says. Based on press accounts on Air America, the Kellys believed they were joining such celebrity investors as television producer Norman Lear and Laurie David, the wife of comedian Larry David. However, the identity of the other investors was kept secret.

By the time Air America held a lavish kickoff party March 31, 2004, in New York City, Terry Kelly realized "something was clearly amiss" with the organization because then-chairman Evan Cohen said he "forgot the check" to pay the $85,000 bill. Cohen paid it with his American Express card, Kelly recalls.

Within one month, Kelly received a panicked call from David Goodkind, who had become Air America's general counsel, stating the company had no money and couldn't make payroll. The network lost its affiliates in Chicago and Los Angeles because it hadn't paid for the leases.

Kelly demanded a list of Air America investors -- Lear and David were not among them -- and the group met for the first time in New York. While Cohen and his partner, Rex Sorensen, had said they invested $12 million toward $30 million they had raised for the network, in truth, Air America had $7 million in initial investments, with little or none from Cohen and Sorensen. The investors learned that their $7 million "was gone" and the network owed another $2.5 million to creditors.

"It was a full day of shock and anger," Kelly says.

The vast majority of businesses would have filed for bankruptcy, but the Air America investors focused on whether it was conceivable the network could survive its quick crash, Kelly says. They agreed to make payroll and tax payments and keep the network running.

The investors dispatched an attorney to compel Cohen and Sorensen to resign immediately and sign over their stock to the investors. The entire startup crisis was captured on an HBO documentary appearing this spring called "Left of the Dial."

Behind the scenes Kelly does not appear in the HBO documentary but was instrumental in Air America's reorganization. He was assigned in May 2004 to lead the effort to rework Air America's finances, help raise more funds and rewrite the business plan. In June 2004, he was named chairman of the board, a post he held until late 2004.

Kelly and the other investors started a new company, Piquant L.L.C., agreed to pay off debts, downsized the staff, settled with Cohen and Sorensen, and raised another $19.2 million in private equity. The largest investor and now chairman is Rob Glaser, CEO of RealNetworks Inc., Seattle.

The new business plan calls for Air America to suspend its strategy of buying radio stations and focus on selling its programs, with hosts like comedian Al Franken and comedienne Janeane Garafalo, to radio stations. Kelly led the search committee for new top executives, recruiting recording industry executive Danny Goldberg as CEO and radio syndication executive Gary Krantz as president.

The story of how RealNetwork's Rob Glaser came to Air America's rescue also makes for an interesting study in the small world of political and celebrity links. Here's a short excerpt from Geov Parrish's interview with Al Franken that appeared in the May 4 - May 10 issue of Seattle Weekly:

Geov Parrish: "So I understand that your last visit to Seattle played a role in getting Air America off the ground, with Sen. Maria Cantwell introducing you to Rob Glaser of RealNetworks fame. Talk a little bit about that."

Al Franken: "Kenan Block introduced me to Maria. I was in Seattle. I think Seattle is like Minneapolis. It's essentially not that big a city, and people know each other. So Kenan [a public affairs consultant], who I know from his days as a producer at McNeil-Lehrer, is somebody I always see when I go to Seattle, and he wanted to introduce me to Maria. I met her, was delighted to, and she introduced me to Rob, who I was delighted to meet. We had dinner, and I sort of asked him to look at Air America and give me some advice on it. It was my clever way of luring him into it. I'm very clever. And extremely persuasive."

As we know from Terry Kelly's story, Rob Glaser's timely infusion of capital was a primary factor in Air America's survival.

Labels: business

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