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Media Decoder Blog: Deal Would Lead Letterman to a Late-Night Milestone

Paul Drinkwater/NBC, via Associated PressDavid Letterman as a guest on “The Tonight Show” with his idol, Johnny Carson. It appears that he will extend his contract, and surpass Mr. Carson’s 30 years as a late-night host.

PASADENA, Calif. – It appears increasingly likely that David Letterman will extend his contract, pushing him past the 30-year run of his idol, Johnny Carson.

According to executives who have been involved in discussions with Mr. Letterman’s production company, Worldwide Pants, a deal to remain on the air until 2014 is imminent. The executives said that CBS had authorized the company to make new agreements with the key members of Mr. Letterman’s staff, his producers and writers.

“That means a final deal with Dave is very close,” said one of the executives involved in the negotiations, who asked not to be identified because the deal is not yet ready to be announced.

What remains unsettled, according to several executives, is the future of the host of CBS show that follows Mr. Letterman, Craig Ferguson. There remains a possibility that he will choose not to continue, the executive involved in the negotiations said.

For many months, people close to Mr. Letterman said he had decided not to retire this year, as had been rumored when he agreed to his last two-year extension in 2010. Instead, Mr. Letterman has given indications for months that he was leaning toward staying on the job, hosting the show called “Late Show With David Letterman.”

Mr. Letterman joined CBS in 1993, after an 11-year career in late-night at NBC. Next year, will be his 20th year at CBS. If he works until the end of the extended deal he will have been on the air for 32 years in late night, two more than Mr. Carson’s record run at NBC’s “Tonight” show.

Leslie Moonves, the CBS chairman, said he would not comment on the status of the late-night talks. One senior CBS executive said only that the network expected a satisfactory conclusion to the late-night situation.

Mr. Letterman’s current deal expires in August, though it contains a window for him to exit in May. (May is the end of the standard television season and more logical exit point than August; Mr. Carson left in May 1992, after 30 years.)

The issue surrounding Mr. Ferguson is whether he will come to terms to continue in the 12:35 a.m. time slot. CBS is expected to seek to keep him, and he does have a clause in his contract that would guarantee him the 11:35 show if Mr. Letterman chose to step down.

But Mr. Ferguson has never taken the position that he must inherit the earlier time period by a certain time, an issue that has clouded previous late-night transitions at NBC.

Instead, the issue of whether Mr. Ferguson will stay at CBS or seek a new direction in his career is expected to come down to whether CBS improves his salary, and perhaps improves the production budget for his “Late Late Show.”

Tags: Decoder, LateNight, Letterman, Media, Milestone, Would

Wealth Matters: Deciding Who’s Rich (or Smart) Enough for High-Risk Investments

But it has broader implications. Should the United States government be deciding what people can do with their money? And how do you define who is wealthy enough — and smart enough — to invest in these offerings?

We’re talking about private placements — a term the financial industry uses for anything from real estate deals to hedge funds to last year’s much-talked-about offering in Facebook shares. What all these investments have in common is that they can be sold with fewer disclosures than public offerings.

They also often carry cachet, and those who get into them can end up with large returns. That may seem unfair to anyone excluded because of a lack of wealth. But these private investments can go to zero just as easily as they can climb into the stratosphere, which is why investors who cannot afford to lose a lot of money are barred.

Since 1982, specific dollar amounts have been used to define who is an “accredited investor,” the S.E.C.’s term for someone deemed sophisticated enough to invest in these nonpublic deals.

The two most commonly used measures are annual income — over $200,000 for an individual or $300,000 for a couple — and net worth, which was $1 million. In late December, the S.E.C. redefined how people should calculate their net worth. Per the requirements of Dodd-Frank, the commission removed the equity in a person’s primary residence from consideration. (But if the value of that house is less than the mortgage, that liability needs to be included.)

“It’s an interesting question as to why this qualifies someone as sophisticated,” said Robert E. Buckholz Jr., a partner at Sullivan & Cromwell. “The income and the net worth requirements are a proxy for the ability to fend for yourself.”

But also in compliance with Dodd-Frank, the S.E.C. will spend the next three years determining whether to make further changes in the accredited investor requirements. While it is hard to say what the review will produce, it is worthwhile to look at how wealth and financial expertise have been confused.

WHAT THE RULE DOES In a 2009 article in The Washington University Law Review, Wallis K. Finger, now an associate at Schulte Roth & Zabel, used humor to lay out the problem of using money as a proxy for sophistication.

“Paris Hilton almost certainly can purchase unregulated securities issued by hedge funds or other private investment vehicles,” Ms. Finger wrote. “Although her training and sophistication in the field of high-stakes financial transactions may be limited, the Securities and Exchange Commission would leave her to her own devices if she chose to invest in private offerings.”

For comparison, she created a woman named Sheryl who has a master’s degree in business from Harvard and a doctorate in financial systems analysis. “After all of this schooling, Sheryl is long on debt and short on assets,” Ms. Finger wrote. “She has several offers to work at the nation’s most prestigious investment brokerages. But if Sheryl wants to invest in a private offering, the S.E.C. regulations will not allow it.”

In other words, using money as a stand-in for financial sophistication is a fairly unsophisticated solution.

When news leaked out last year that Goldman Sachs was planning to offer private shares in Facebook to its wealthiest clients, there was outrage from people who were excluded. After much media attention, the firm limited the private offering to overseas clients to be sure it complied with S.E.C. regulations. (Anyone will be able to buy shares in the initial public offering of Facebook.)

In reality, most private offerings are far less glamorous and carry significant risks.

Barbara Black, a professor and director of the corporate law center at the University of Cincinnati College of Law, said she was more concerned about small offerings, like a local real estate partnership, where an entrepreneur tries to raise money by promising outsize returns to investors in the community.

“It may be perfectly fine, but the nature of things is that these are risky,” Ms. Black said. “You see litigation involving people who are wealthy, but you don’t think of them as super-rich — doctors, dentists, lawyers, some accountants. Are these really sophisticated investors?”

DOES IT WORK? The accredited investor regulation is by design paternalistic, but its arbitrariness is what bothers people.

Originally, the Securities Act of 1933 aimed to provide more information on securities to prevent investors from being manipulated. Those who were exempted from these requirements were believed to possess enough knowledge to make informed choices.

Using the example of doctors and lawyers investing in a local real estate deal, Yasho Lahiri, a partner at law firm Baker Botts in New York, said investors would be better protected with more disclosures, not by their degree of wealth.

Tags: Deciding, Enough, HighRisk, Investments, Matters, Smart, Wealth

Debt Ratings Cut For 9 Countries Amid Euro Woes

Another memory jog came Friday from Greece, the original source of Europe’s debt troubles. Talks hit a snag between the new Greek government and the banks and other private investors that Athens hopes will agree to take losses on their debt so that Greece can avoid a default.

Together, those developments underscore that even as Europe’s debt turmoil enters its third year, no clear solutions are yet in sight — despite recent signs that a new lending program by the European Central Bank might be easing financial market pressures.

S.& P. warned in December that it might downgrade many of the 17 nations that share the euro, largely because it said European politicians were moving too slowly to strengthen the monetary union and because the euro zone’s problems were propelling Europe toward its second recession in three years.

European politicians, in turn, criticized S.& P.’s downgrade plans as providing no meaningful new information to investors but simply stoking a sense of crisis.

To some extent, the prospect of rating downgrades has already been priced into recent bond auctions by Italy, Spain and other countries. Italy, in fact, completed another fairly successful bond auction on Friday, even as rumors of the downgrades had begun to swirl.

But the downgrades may now add to the borrowing costs of the nations affected. Some commercial banks that are required to hold only the highest-rated government securities will have to replace French bonds with other assets, like bonds of Germany.

And the downgrades cannot help but add to the gloom pervading Europe’s economic climate.

“Today’s rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone,” S.&. P said.

Finance Minister François Baroin of France said Friday that the loss of his country’s pristine AAA rating, cut a notch to AA+, was “not good news” but was “not a catastrophe.” He insisted that the country was headed in the right direction and that no ratings agency would dictate the policies of France, which has Europe’s second-biggest economy, behind Germany’s.

But the downgrades pose fresh challenges for Europe’s political leaders, particularly President Nicolas Sarkozy of France, who is expected to run for re-election this spring and had long cited his country’s AAA credit rating as a badge of honor.

In August, when S.& P. cut the United States a notch from its top-rank AAA rating, markets briefly plunged. But bond investors have continued to flock to the debt of the United States, which as the world’s largest economy has retained the perception of a financial safe haven. That has kept the United States government’s interest rates at very low levels. But none of the countries downgraded on Friday can necessarily count on such a reaction.

After Friday, the only euro zone nations retaining their top AAA ratings are Germany, the Netherlands, Finland and Luxembourg.

Italy and Spain, which are considered the two big euro-zone economies most vulnerable to an escalation of debt problems, both were downgraded two notches, Italy to BBB+ and Spain to A.

“It will make it harder to erect firewalls around struggling euro zone economies and convince investors that things are more sustainable,” said Simon Tilford, the chief economist for the Center for European Reform in London.

Stocks were down broadly if not deeply in Europe and the United States on Friday, as rumors of the downgrades preceded S.& P.’s announcement, which came after the close of trading on Wall Street. And the euro fell to a 16-month low against the dollar.

Just as significant as the ratings downgrades may be the suspension on Friday of the creditor talks in Greece — whose debt S.& P. long ago gave junk status.

In October, the European Union pledged to write off 100 billion euros ($127.8 billion) of Greece’s debt if bondholders would agree to voluntarily accept 50 percent losses on their Greek holdings. Such an arrangement, known as private-sector involvement, or P.S.I., has been pushed by Chancellor Angela Merkel of Germany as a way of forcing banks, not only European taxpayers, to foot the bill for bailing out Greece.

But talks broke down on Friday between Greece and the commercial banks.

David Jolly and Steven Erlanger contributed reporting from Paris, Landon Thomas Jr. from London and Gaia Pianigiani from Rome.

Tags: Countries, Ratings