Assessing Dealbreaker and the New York Observer

CNBC.com’s John Carney, who ran Dealbreaker.com from 2006 to 2008, looks at how the deal to sell the business news and gossip site to the New York Observer is being held up because current editor Bess Levin is not signed to a long-term deal.

Carney writes, “I don’t think Bess has any actual equity in Breaking Media and she certainly has no contractual rights to veto a sale of DealBreaker. But in this situation actual equity ownership and contractual rights are irrelevant. Bess holds a de facto veto because so much of the value of the company would be lost if she left.

“DealBreaker’s readers are frothy-mouthed fans of Bess. Any acquisition that didn’t bring Bess along would be counter-productive. Bess’s fans would turn against the site, and Bess would likely find backers for a competitor. (Barry Ritholtz has already offered to stake her.)

“To put it differently, despite what the paperwork might say, Bess is an economic owner of DealBreaker. Attempts to pay out the legal owners while ignoring her economic ownership will fail.

“It didn’t have to be this way. DealBreaker’s owners could have bought out Bess’s economic ownership earlier if they had put her under a multi-year contract. If she was under contract, DealBreaker could be sold without her consent. But they would have had to pay for this by offering her a signing bonus or a significantly higher salary.”

Read more here.