Comdex Operator Faces Crushing Debt Burden

Just 72 hours before the opening of the huge computer trade show Comdex, the Los Angeles-based company that runs the event said Thursday that it probably faces a sale or merger because it is plagued with losses and can’t pay its debt.

Key3Media Group Inc. is being crushed by a heavy debt burden at the same time the technology industry’s collapse and post-Sept. 11 cuts in business travel have eroded attendance at shows such as Comdex, a four-day event that starts Sunday in Las Vegas. The company also runs more than two dozen other shows worldwide that create forums for buyers and sellers of electronic gear.

After Comdex ends, Key3Media will explore a sale, merger or other restructuring, perhaps using a Chapter 11 bankruptcy reorganization to facilitate the overhaul, the company said while announcing another quarterly loss. Pressure will intensify after Dec. 16, when the company faces a debt payment of about $15 million that it can’t afford. Key3Media’s stock, meanwhile, is nearly worthless.

It all marks a rude setback for Chairman Fredric Rosen, a controversial yet celebrated executive who was the architect behind the meteoric rise of Ticketmaster. But after taking the reins at Key3Media 2 1/2 years ago -- just as the tech sector’s bubble was starting to burst -- he’s nearly out of options to keep Key3Media independent.

“This has been a very brutal, painful environment,” Rosen, 58, said Thursday in an interview. “After 9/11, everything accelerated into a downdraft.”

But Key3Media’s woes also raise questions about Rosen’s management. Even as the technology industry was starting to crater last year, the company spent more than $100 million to buy niche trade shows focused on computer networking, the Internet and other industries.

Since then, Key3Media has had to take charges totaling more than $640 million to write down the value of those shows and other assets. In effect, the write-downs indicate that Key3Media vastly overpaid for the acquisitions.

Rosen said it is easy, in retrospect, to conclude that he paid too much, but the tech meltdown and post-Sept. 11 impact whipsawed the company faster and harder than anyone could have imagined. At the time, the prices paid appeared to be “reasonable values,” he said. “To the extent that I’m subject to criticism, OK. You make the best decision you can at the time.”

Rosen has been cutting operating costs and shrinking the business to keep Key3Media afloat. The company postponed a Comdex show in Chicago and pulled the plug on other tech shows in Atlanta, New York, Canada and Australia. Key3Media’s work force has been cut by nearly half, to about 375 people.

But it won’t be enough. Consider:

* The company Thursday posted a third-quarter loss of $315.7 million, which included a $300-million charge for the write-down of assets. For the first nine months of 2002 it lost $686.2 million on revenue of $111.6 million. In the same nine-month period a year ago, it lost $20.2 million on revenue of $175.2 million.

* Key3Media’s debt, totaling $370 million, is rated as “junk” by both Standard & Poor’s Corp. and Moody’s Investors Service, meaning the company has little chance of raising fresh cash from the credit markets.

* Key3Media’s stock, which went public at $6 a share in mid-2000 and climbed as high as $13, now trades for less than a nickel a share on the over-the-counter market. The loss has virtually wiped out the investments of Key3Media’s controlling stockholder, Japanese Internet company Softbank Corp., and other shareholders such as U.S. billionaire Kenneth Langone. Both declined to comment.

Key3Media isn’t the only one suffering from the malaise of information technology, or IT, trade shows.

“It’s a very difficult environment for both trade shows in general and technology shows in specific,” said Moody’s analyst Christina Padgett.

Although still popular, the shows mirror their industries, and both IT exhibitors and the buyers who flock to the convention centers to see the new gadgets have sharply cut spending. Fewer firms are willing to pay to display their wares at shows, and potential buyers of IT equipment are spending less to attend the shows and, ultimately, less on exhibitors’ products.

But Key3Media’s fall Comdex show has been particularly hardhit, even though it’s “still the best known IT event brand in the U.S.,” said Michael Hughes, research director at the industry publication Tradeshow Week. After drawing 211,625 people and 2,337 exhibitors two years ago, Comdex garnered 124,613 visitors and 1,685 exhibitors last fall, the publication said.

Even as more exhibitors pull back for this year, about 125,000 people will attend next week’s show, Rosen estimated. Key3Media was created when the media firm Ziff-Davis Inc., then a unit of Softbank, spun off its trade show assets in 2000. (Softbank also sold the rest of Ziff-Davis that year to CNet Networks Inc.) Key3Media then sold a minority stock interest to the public, with Softbank retaining a controlling stake.

Rosen, with a net worth exceeding $70 million, is a blunt, aggressive executive who gained wealth, fame and controversy at Ticketmaster. A small ticketing outfit when he took control in 1982, Ticketmaster grew into the dominant U.S. ticketing company and was selling 70 million tickets annually when it was sold in 1998 to Barry Diller’s USA Networks. (Diller’s current company, USA Interactive, still controls Ticketmaster.)

A key part of Ticketmaster’s success was signing venue owners to exclusive relationships by sharing ticket revenues. The growth of Internet commerce also bolstered the firm. But Rosen’s sharp elbows gained him a fair number of enemies, and at one point the Justice Department probed the company on antitrust grounds, though it declined to take further action.

Rosen now has to deal with salvaging Key3Media, and he might not be around after it’s sold or restructured. “Whether I stay in this business or decide I want to do something else, time will tell,” he said.

And when asked if he’s at all to blame for Key3Media’s failure, Rosen said of himself: “It happened during your watch.” But given the ferocity of the external forces that damaged Key3Media, he said, “I’m not sure anybody else could have done anything different.”