The budget cuts that Telegraph editors weren’t meant to see

It's (very) profitable. So why the £5.3m of cuts?

When Culture Secretary Lisa Nandy agreed to let foreign states become co-owners of British newspapers - with stakes of up to 15pc - she said this would “raise vital funding.” But for whom? Money spent buying a media company and actual investment in journalism can be very different things - as the Daily Telegraph, my old paper, is finding out.

It has been in limbo since June 2023 when Lloyds Bank called in a £1.2 billion loan which the Barclay family - owners of the newspaper and the Spectator - had defaulted on. As I found out, any sales process distorts a company. Long-term planning is supplanted by short-term sales process. It’s hard to plan long-term when no one around the management table expects to be around post-sale. When valuations are a multiple of profit, there is an incentive to cut investment to flatter profit.

In Dec23, Emirati-funded RedBird IMI bought both titles in backdoor deal that was later struck down by parliament. Autocracies, it was ruled, should not own the free press. While RedBird sold The Spectator for £100m it played for time with the Telegraph, keeping it in limbo and lobbying Nandy - who eventually (and to my dismay) agreed to let foreign powers take a 15pc stake. The House of Lords, where the rebellion began, even accepted this in a recent vote - thinking, as Nandy did, that this would mean more “vital funding” for journalism.

In May, RedBird said would then buy the Telegraph - presumably with the Emirati-owned IMI keeping a 15pc stake. “This transaction marks the start of a new era for the Telegraph,” promised RedBird founder Gerry Cardinale. He would “grow the brand in the UK and internationally, invest in its technology and expand its subscriber base.”

But behind the scenes, something very different was happening. Last week, Daily Telegraph staff found out that their editorial budget has been secretly slashed bym £5.3m (from £77m to £71.7m). This includes a £2.2m cut for editorial staff and £2.7m for other editorial costs. This was just two weeks after the House of Lords vote, and two months after Cardinale’s promise of investment.

The discovery was an accident. A junior in the finance department emailed the revised budgets to all the various senior editors who were astonished to see the green turned to red. The official explanation? They had “underspent” on editorial staff and costs. Editors knew this to be nonsense. The paper has not been allowed to hire; planned appointments have been blocked. All, it seems, to manufacture an ‘underspend’ - and then justify a cut.

Senior editors moved quickly to expose this, calling the bluff of the finance team. They asked if they would be allowed to address this supposed underspend and find suitable candidates. No, came the reply, because they surplus budget had already been taken as profit. Exactly as the journalists suspected.

The worst of it is that the Telegraph is doing very well, making money hand over fist. But that money is being bled as profit, not reinvested.

What’s going on? The obvious explanation is that RedBird is struggling to find the money for that promised £500m deal. There has been talk of £100m of debt financing and getting other investors in. But, two months after that announcement, still limbo.

It’s well known that serious bids for the Telegraph - ones that would genuinely allow the investment it so badly needs - would value the paper at £350 million. The fear is that a £500m valuation (which Sheikh Mansour is keen on) could only be financially justified by bleeding it for profit. So a high price tag is, perversely. likely to mean less investment.

Anna Jones and RedBird: how close is too close?

Last year Anna Jones, the recently-promoted Telegraph CEO, suggested lowering the profit targets to concentrate on growing subscriptions. This is the obvious long-term strategy - and exactly what Cardinale says, in public, that he’d like to do. It would mean more investment and slightly reduced profit - or, rather, a profit margin that was slightly less obscene. It was all signed off, supposed to be the 2025 financial plan.

But David Castelblanco, the RedBird executive handling this for debacle Cardinale, is understood to have blown a gasket when he heard about Jones’ plans and demanded cuts instead. The row leaked into the Telegraph’s own pages, prompting threats from ministers to Redbird — and, in turn, from Redbird to the Daily Telegraph’s board. Since then, I gather, Jones has been more in sync with Redbird and quite tight with Castelblanco, But, crucially, she’s not supposed to be.

The Daily Telegraph is still under a hold-separate order from Parliament: until its sale is agreed, nothing significant is supposed to happen. It’s supposed to be preserving rather than reshaping, the paper. This is called a Public Interest Immunity Notice - a PIIN - and it’s supposed to mean that RedBird can sell but not mess with the Telegraph. But a secret £5.3 million editorial budget cut - kept even from senior editors - suggests that this obligation is not being honoured.

Some at the Telegraph regard the relationship between Jones and Castelblanco as being now so close as to violate the order from the DCMS. Why else would the agreed 2025 budget be revised, with deep and secret cuts to editorial? Why else would they revert back to the risibly optimistic forecasts dreamed up under ex-ceo Nick Hugh in 2023?

Having trust breaks down between chief exec and editorial is quite serious for a newspaper. There was a delay in publishing last year’s profit figure, rumoured to be good but slightly less than forecast. The delay looked like a favour to RedBird, to chime with the sales timetable. Advertising staff are also complaining of pressure to increase revenue forecasts to an unrealistic degree. In other words, the PIIN is being violated - as a result of this newspaper being trapped in an auction block for years, in defiance of Parliament.

There’s no suggestion the UAE was in any way directly involved in the budget cuts. The problem is RedBird, a US private equity firm with no knowledge or even interest in the UK newspaper market. It is holding out for an unrealistic £500m offer to assuage its UAE partners. The Emiratis, for their part, are furious about the backlash against what they were assured (by George Osborne and others) would be a straightforward deal.

If Cardinale’s mooted £500m deal collapses - if he is struggling to find investors to share the costs - that would explain why Jones would be encouraged cut the editorial budget. A cooked-up profits increase makes the painful job of covering debt repayments look more realistic. That’s why many of the journalists at the Telegraph perceive the budget cuts to be suggestive of interference by RedBird.

I edited The Spectator when it was on the auction block for 18 months and found it agonising. It prevents long-term investment decisions, makes hiring a lot harder and has a paralysing effect at a time when the industry is going through massive change. As editor, I had Andrew Neil with me and an independent board whose RedBird connections never went beyond the cordial - and, quite often with Andrew, not so cordial.

The PIIN strain

The Spectator was lucky to be protected from RedBird interference. The Telegraph was too: at least at first. But the longer this sales process went on, the weaker that protection would be. A PIIN is a crazy way to run a company, and is designed to only ever be short-term. With the Telegraph sales process now in its third agonising year the fractures we’re seeing (with what is looking dangerously like a ceo/editorial split) were inevitable. The strain of the sale was - and is - just too great.

The worst of all this is that the Telegraph does not need a penny of Arab money. It does not a bailout or even a sugar daddy. It just needs permission to reinvest the money already being contributed by its readers - and the freedom to make the investments to guarantee quality journalism.

The journalists there have been making an incredible success of the paper under the most difficult circumstances imaginable; only to find the fruits of that success should be confiscated rather than invested. It seems that RedBird have not quite worked out how crucial it is for the owner of a newspaper to have the confidence of editorial. As even Jeff Bezos has found with the Washington Post, it’s harder to manage a newspaper once such confidence is lost.

RedBird has been given almost everything it could reasonably expect from the Starmer government with that 15pc ruling. It now has no excuse not to release the Daily Telegraph - and let its recovery begin.

And if not? Then, a final thought.

Anyone can being a Judicial Review forcing the DCMS to enforce Parliament’s instruction that RedBird IMI sell the Telegraph. They DCMS has been given the run-around by these guys from day one. Even the credible threat of such a JR could finally persuade the distracted Cardinale to release the Telegraph - as Parliament instructed him to do. Here’s hoping.

UPDATE I’ve been sent the below statement from the board of Telegraph Media Group which I’m happy to publish:-

“Ongoing management and oversight of Telegraph Media Group and its operations require the Board and CEO to liaise with all relevant stakeholders, including RedBird Capital Partners, in line with agreed governance protocols. The board and CEO will continue to fulfil their fiduciary duties and facilitate an anticipated transaction, consistent with the requirements of relevant legislation.”