Ruhe and Geissler Lose Sway as UPI Implodes

Luis Nogales, UPI CEO

As summer 1984 wore on, another Baha’i friend of Ruhe, continued to chase payment for enormous consulting fees for an automated accounting system he promised UPI but never delivered. When I joined Kenny and Self urging Ruhe to further postpone payment to this non-critical vendor, Ruhe was adamant in ordering immediate payment. For Self, it was the straw and broke the camel’s back. She shortly departed for the more pacific world of the Baptist Sunday School Board.

Luis Nogales in his role as UPI’s Executive Vice President in New York increasingly became aware of the dire financial straits the company was in. I had no sooner returned to Nashville from concluding the sale of UPI’s photographic business in London, than Nogales had concluded employee layoffs and salary cuts needed to be immediately negotiated with the Wire Service Guild union if UPI was to avoid going under.

Gordon and Cohen in Down to the Wire report that Geisler was blind to this reality and wrote an angry letter to Nogales ordering him out of the negotiations with the wire service union, saying along the way, “All you MBAs think the only way to solve problems is pay cuts and layoffs. The way to do it is sales and marketing and increasing revenues.”

By early August 1984, Ruhe and Geissler could no longer keep the company’s imminent collapse from the union. Wire Service Guild President William Morrisey was astounded when informed of the peril facing the union’s entire membership. UPI owed creditors $20 million and was losing $1.5 million each and every month going forward. Initially, all concerned believed that UPI should do everything it could to avoid bankruptcy, since such news would have an immediate adverse effect on UPI’s customers and many newspapers would no doubt not renew their subscriptions. Ruhe and Geissler in particular understood that, while not a certainty, UPI filing for bankruptcy could wash them out of any continuing management role and render their ownership interest in the company worthless.

Notwithstanding the fact that UPI President Bill Small continued to turn up in UPI’s New York office every day, as a practical matter in the emerging crisis, Luis Nogales was the person running the operations of the company day to day.

Luis Nogales, Special Assistant to Stanford University’s President 1970

Coming from humble immigrant origins, Nogales grew up in the agricultural valleys of California near Calexico working as a farm worker.  He was able to attend  college at San Diego State University and, in 1969, he graduated from Stanford University Law School. When he was inducted into Stanford University’s Multicultural Hall of Fame in 2004, his profile had this to say about him:

Mr. Nogales has had a full and active career in the private sector and public service. He served as CEO of United Press International and President of Univision, among senior operating positions; in addition, he has served on the board of directors Levi Strauss & Company, The Bank of California, Lucky Stores, Golden West Broadcasters, Arbitron, K-B Home, Coors, and Kaufman & Broad, S.A. France. He also served as Senior Advisor to the Latin America Private Equity Group of Deutsche Bank working in Brazil, Argentina, and Mexico. On corporate boards he has been an advocate for diversity of the workforce and senior management. While assuming leadership positions in the private sector, Mr. Nogales continued participating in public service by serving, among other activities, as a Trustee of the Ford Foundation, The Getty Trust, The Mayo Clinic Trust, and Stanford University. He also served on the board of directors of the Inter-American Foundation, The Inter-American Dialogue, The Pacific Council on Foreign Policy and The Mexican and American Legal Defense Fund, (MALDEF) where he served as president of the Board.

Luis Nogales

Not surprisingly, as the company’s financial condition deteriorated, I worked increasingly with Luis both before and after I became UPI’s General Counsel.  As his dispute with Ruhe and Geissler came to a head as to who should be managing the company, it wasn’t hard to see what the better outcome for the company would be.  With Ruhe and Geissler, you had would-be boy wonders who had briefly gamed the minority lottery set aside program of the FCC to transitory wealth.  Though poor in cash, good sense and management experience, they were possessed with a high energy impetuousness and good luck.  This had permitted them to leverage their position beyond anyone’s wildest expectations into the ownership and control of UPI.   However, having won a prize they were ill-equipped to deal with, they had in short order run UPI into the muck with a speed fast enough to make your head spin.

With the fate of UPI now hanging in the balance, you didn’t have to be a seer at this point to recognize that the company would be better off having its debt and management reorganized under the federal bankruptcy laws.  In contrast to Ruhe and Geissler, you had in Nogales the exact opposite choice of someone to carry the company forward in trying times.  Trained as a lawyer, and possessed of exceptional leadership and political skills, early in his career he was already a accomplished business person with the experience and intelligence to manage a large, global media company in trouble.  My sympathies naturally lay on his side as the management conflict with Ruhe and Geissler came to a head.  As our lawyer-client relationship unfolded in this period, we became good friends.  On my side, I admired Luis and was proud to know him.

After some effort, and with the grudging consent of Ruhe and Geissler, Nogales was able to open the books of UPI to the union and made sure there was transparency with the union as to the company’s ownership structure and finances. Pursuant to his direction, Linda Neal and I spent a long day with the union negotiators in UPI’s Brentwood office unveiling the strange corporate structure of companies Ruhe and Geissler had erected to serve their interests, if not UPI’s. Morrisey and the others were both shocked and angry at what they learned.  With bankruptcy still a real possibility in the short term, the union agreed to job cuts and wage givebacks. The final agreement with the Wire Service Guild called for the wage cuts to expire before the end of 1984.

UPI wasn’t the only thing going south for Ruhe and Geissler at the end of 1984. The use of minority set-asides had indeed brought them success in the early ‘80s with the FCC lotteries granting them multiple low-power TV licenses. If the stations were built, the business model at the time was to acquire paying viewers through subscriptions.

Chicago Tribune 1979

This early form of Pay- TV got Channel 66 off the ground in Joliet, Illinois and Ruhe and Geissler’s Focus Broadcasting Company got outside investors interested in putting up the capital for several other small markets. What Ruhe and Geissler hadn’t counted on was the nascent growth of cable television eating into what they thought would be a long- term income stream for such low- power channels. As 1984 unfolded, the program provider for Channel 66 pulled out and the channel began to fill its airways with soft-core porn content and music videos.  Ruhe and Geissler began trying to switch the channel to a regular commercial station format and sell it to another operator.  If a sale couldn’t be accomplished, Ruhe and Geissler’s entire world might crumble around them.

Down to the Wire describes the period this way:

Nogales’s own illusions about the TV sale were short-lived. Not long after he had delivered to employees the owners’ pledge of a cash injection, he recalled later, he was chatting with Ruhe when the subject of the owners’ investing money from Channel 66 came up. “I wouldn’t risk a dollar in UPI,” Ruhe said firmly. Nogales couldn’t believe what he was hearing. He had just put his reputation on the line for the owners. “Doug,” he said, bristling, “ I went down and told the staff after clearing it with you that you would put $10 million or $12 million from the proceeds of the [TV] sale into UPI.” Ruhe stiffened. “No, I’m not going to put in a dime,” he declared. On many occasions Nogales had gone out of his way to excuse the shortcomings of the owners, who had hired and promoted him. But now, he thought, Ruhe had betrayed him. And betrayed UPI.

With operating cash non-existent, Ruhe decided to borrow from Uncle Sam by not paying the Internal Revenue Service $3 million in employee payroll taxes owed for 1984’s fourth quarter. I had been careful to make sure Ruhe and all the senior executives were aware of the enormous personal exposure this could bring them.  Shorting the IRS is one of the great no-nos of running any business, because the owners or executives responsible for making this decision can end up assuming personal liability for the shortfall if the company itself can’t make good on the debt.

This properly scared the bejesus out of Nogales, Kenny, and others. So, when Ruhe and Geissler still hadn’t been able to sell Channel 66 in early 1985, the proverbial excrement began to hit the fan when it became apparent UPI would be unable to pay the now past due taxes. Kenny’s proper response was to promptly inform UPI’s lender Foothill. Foothill executives were not amused, since in a bankruptcy the IRS would have a higher priority for being repaid than even a secured lender like Foothill.