Newspaper Broker Plays Hardball

By: Mark Fitzgerald The way his fellow brokers see it, Gregg K. Knowles wants to keep all California newspaper deals for himself ? and he's using the state's arcane real estate laws and cooperative bureaucrats to get his way.

In a three-year campaign that's gone unnoticed outside the circle of newspaper brokers, Knowles, who owns Bakersfield, Calif.-based Knowles Media Brokerage Services, has filed complaints against the industry's biggest brokers with the California Department of Real Estate (DRE). The gist of all the complaints is the same: The out-of-state brokers negotiated newspaper sales, or just solicited deals, without having a California real estate license.

As it happens, Knowles is licensed by the DRE ? apparently the only active newspaper broker in the nation who is.

"He's made a complaint about all of us," says Larry Grimes, president of the big Gaithersburg, Md.-based brokerage firm W.B. Grimes & Co. "It's unethical what he did to us ? you just don't do that. And he had purely selfish reasons for doing that. He thought he could do all the business in California if he turned everybody in."

Knowles says he's made the complaints so that all brokers follow the same rules. "I'm not trying to stop competition ? I just want it to be on a level playing field," he says. "It's a free country. Anyone can come in, but they have to comply with the law."

Brokers say the complaints force them to contend with a bureaucracy that does not understand the difference between selling a newspaper and a split-level in Mendocino. "I've tried to explain to them why newspapers want to use brokers who come from the publishing industry," Grimes says. A regular real estate broker is not equipped to appraise and negotiate newspaper businesses, he says, but also many transactions, such as the sales of community papers or magazines, do not involve real estate at all.

Grimes says he's been fighting with the DRE for two-and-a-half years because of the Knowles complaints ? one of which, he says, concerned a newspaper with which he has never done business. In a vain attempt to appease the DRE, his firm aligned with a California-licensed business broker. "When we do a deal, we give a little percentage of the commission to the broker, and in return, if there's a [state] issue that comes up, they can handle it," Grimes says. "Well, the real estate department finds that not to be kosher."

In April, the DRE slapped Grimes and his company with a "desist and refrain" (D&R) order demanding that it cease negotiating or soliciting newspaper transaction until it gets a real estate license. The order cites the firm for offering to negotiate in the sale of the Sonoma West Times and News.

In December, the DRE filed a similar D&R against the nation's most active brokerage, Santa Fe, N.M.-based Dirks, Van Essen & Murray. This order cited deals between 2002 and 2004, involving four California papers or groups: The Record in Stockton; the Paradise Post; the Merced Sun Star; and Pacific Sierra Publishing Holdings Inc.

Dirks President Owen Van Essen said the company had tried to comply with the unusual California regulations. "We were working with a California Realtor, and were led to believe by the (DRE) that we were in compliance. They have now asked us to do more," he says. The firm has created a California-based company, and says it will do what it must to operate in the state.

The D&R orders don't undo the transactions, and the DRE cannot order any punishment for the alleged violations, DRE spokesman Tom Pool says. "Operating in California as a licensed broker without a license is a misdemeanor, so there is potential for criminal prosecution," he says. "There's also the potential for the attorney general to step in [and allege] unfair business competition."

Knowles says he has filed complaints with the DRE against "several" brokers, but declined to name any beyond Dirks and Grimes. Pool confirmed the D&R orders against the two companies, but said it would be too difficult under the DRE filing system to identify complaints against other newspaper brokers.

The broker controversy has attracted little industry attention even inside California. To the frustration of some brokers, the California Newspaper Publishers Association (CNPA) has never lobbied for a newspaper broker licensing exemption, as radio station owners did successfully some years ago. CNPA General Counsel Tom Newton says: "We're a member- driven trade association, and none of our members have asked us to involve ourselves in this issue."

Sales of newspapers have revved up considerably in recent months, and it's unclear how the D&R orders and DRE complaints will affect pending sales. As E&P went to print, Dirks, for instance, was handling the proposed sale of the huge Liberty Group Publishing community chain, which owns at least two dailies and 16 weeklies in California.

Knowles has clearly angered other brokers, but is unrepentant: "I want a fair shot at the business, that's all."