As exciting as any horse race you’d ever see at Churchill Downs or Saratoga, the Minneapolis Star Tribune and Tribune Co. are neck and neck in the much-hyped D.I.D. (Daily Insolvency Derby). The old-time Norris Division/’Black & Blue’ NFC Central rivals Chicago and Minneapolis have rounded the 4th turn and are heading down the stretch with only 23 days left to see which metro market will lose its daily newspaper first. Just last Friday, rumors circulated around the Twin Cities that Credit Suisse was preparing yank ownership of the Star Tribune away from Avista Capital Partners in what would amount to a controlled bankruptcy. While some thought that race might be over, reports have come out today that Tribune has hired Lazrd to oversee a bankruptcy proceeding that might begin as soon as this week. It’s anyone’s race at this point and we’re undoubtedly in for a photo finish.

In its latest attempt to stave off the inevitable, the Minneapolis Star Tribune is demanding that its unions trim off $20 million in annual salary and cost reductions or the daily newspaper will be forced to declare bankruptcy. The company also acknowledged that Avista Capital Partners will be writing off the remaining $25 million on its books for the original $100 million equity investment ($75 million has already been written off). Regardless of what the unions decide to do, Minneapolis has stretched its lead as the most likely first major metro market in the U.S. to lose its daily paper. Time is running out, but I still have 28 days left for one of my 2008 predictions to come true.

It was another dismal week for the daily newspaper industry. Here in Minneapolis, the Star Tribune could only muster 6 pages of employment classifieds on Sunday for thye 2nd week in a row (actually it was about 4 with 2 pages of filler). At that level, the paper has got to be inching ever closer to bankruptcy (they stopped making debt service payments on their unsecured debt in June and their secured debt in October). At this point, the only thing keeping them out of bankruptcy has to be the fact that Credit Suisse wants to own a daily newspaper even less than Avista Capital Partners.

Other headlines from the past week or so include:

• The American Press Institute, during a closed-door “summit” conference, concluded that the daily newspaper industry is reaching “full-blown crisis” stage and will most likely be unable to turn things around without outside help.

• A Morningstar analyst reported that McClatchy’s stock “could be worthless.”

• Not surprising to anyone, Sam Zell’s purchase of the Tribune is proving to be among the worst investments in the history of media (maybe 2nd behind Time Warner’s ridiculous purchase of AOL). Revenue in Q3 was down 10% and nothing the company has tried has had even the slightest impact on plummeting readership. Even the Cubs & Wrigley Field, maybe the only two decent assets in the company, are proving hard to unload in the current enviornment. If Zell cannot sell the franchise as expected, he’ll have a tough time with a $500 million debt payment next Summer.

• Businessweek makes the case that a share of the bailout funds should be earmarked for the daily newspaper industry.

• In Rupert Murdoch’s mind, the cause for the decline/death/demise of the dailies can be pinned entirely upon a culture of “complacency and condescension” (thanks Nick for the article). Murdoch states that:

“The complacency stems from having enjoyed a monopoly–and now finding they have to compete for an audience they once took for granted. The condescension that many show their readers is an even bigger problem. It takes no special genius to point out that if you are contemptuous of your customers, you are going to have a hard time getting them to buy your product. Newspapers are no exception.”

• E.W. Scripps slashed its workforce by 400 people, and the Boston Globe did the same by 42 people.

• Phil Mushnik, in a piece in The New York Post, argues that if the dailies fold, they’ll take local TV news with them. I actually think that there’s a lot more to lose than that, perhaps even a healthy, fully-functioning democracy, but the editorial provides an alarming look at how far one has to stretch the definition of journalism to include local TV news these days.

….Just another busy week in the ongoing saga that is the daily newspaper industry.

As bad as the news has already been this summer about the two dailies in the Twin Cities, it keeps getting worse and worse. Earlier this summer, the Pioneer Press announced that they were scaling back their daily and the Star Tribune announced that they were delaying interest payments. Now, as detailed on MinnPost, it seems a more likely possibility that Media News could sell the St. Paul Pioneer Press. And for the Strib, the paper may be declaring bankruptcy as soon as September. The Minneapolis daily skipped its June interest payment and has indicated (or threatened) in contract negotiations with its unions that it likely will be skipping the next one due in September. Minneapolis is now clearly ahead of Chicago and the nation’s other major metro markets as the odds-on favorite to be the first major U.S. city to lose its daily paper.

Avista Capital Partners, owners of the Star Tribune, announced this morning that they did not make their quarterly interest payment on the $96 million in junior debt that accompanied the roughly $330 million in senior debt used to finance the $530 million purchase of the daily newspaper. While CEO Chris Harte reported that the company has sufficient cash to make the interest payment, he stated that they chose not to make the payments as the company works through renegotiations on the terms and structure of the debt and the entire balance sheet. While Harte’s comments may or may not be accurate, the daily is most certainly now in default on a meangful portion of its debt and is one step closer to insolvency.

In the race with Chicago to see which metro market loses its daily first, Minneapolis has clearly taken a sizeable lead. Interestingly, just as Tribune’s fate might depend on the success of the Cubs and the value that that franchise might fetch in the market with cash proceeds being used to pay down debt, the Star Tribune’s fate is similarly tied to the Minnesota Vikings who are eyeing the paper’s land holdings in downtown Minneapolis on which they are exploring building a new stadium. Who would have thought that the demise of two prominent dailies could be such a ’sporting’ event.

Back in May, McClatchy issued an SEC filing in which it had written down its 49% ownership stake in the Seattle Times from $102 million in 2006 to just $12 million, a drop of nearly 90%. McClatchy acquired the minority stake in its purchase of Knight Ridder and the Blethen family owns the remaining 51% stake. Seattle’s other major daily, the Seattle Post-Intelligencer, is owned by Hearst, and the two papers operate under a joint operating agreement (JOA), albeit with a lot of bad blood and squabbling. McClatchy has also announced that it is very interested in selling its stake in the Seattle Times, even at the current, ridiculously depressed price.

The situation in Seattle is not only indicative of what is happening to daily newspapers around the country, but it’s also particularly relevant to the Twin Cities, which by all accounts is too small a media market to support two daily newspapers, especially in the current environment. The bickering, lawsuits, and troubles surrounding the Hearst/McClatchy relationship in Seattle raises substantial questions about the likelihood of Avista and MediaNews ever reaching an agreement about establishing a JOA or even combining the two dailies in Minneapolis and St. Paul. I cannot imagine that discussions between the two companies are not taking place, but the longer they wait, the more likely it is that the already depressed valuations of both papers are going to be further annihilated. At a valuation of $25 million like the Seattle Times, it hardly becomes worth the effort to try to salvage anything from the business.

According to the New York Post, which for some reason has zeroed in on the saga, the Minneapolis Star Tribune has approached its creditors and asked for a 6 month delay in making debt payments. The story reports that the creditors (Credit Suisse being he biggest) are resisting the appeal and are demanding that Avista inject at least $50M into the beleaguered newspaper company before any such relief is granted. Avista’s original $100M investment has already been written down by 75% (and probably should be written down 100%), and I cannot imagine that the firm is too eager to throw more money into the debacle. Either way, the situation is clearly getting more and more grim every day, and my guess is that the paper will be taken over by creditors before the end of the year.

And like the fascination of watching a train wreck in slow motion, a disaster that was already gripping enough to begin with has become even more so now that I get to read the New York Post headlines that are sure to pop up with increasing regularity.