October 18, 2017

Live Nation Chief Sells Nearly $12 Million in Stock

Michael Rapino, the chief executive of Live Nation Entertainment, has sold $11.7 million of stock in the company in recent days, representing about 38 percent of his direct holdings, the company revealed in a regulatory filing late Tuesday.

The sales, made on Friday and Monday, apparently came as the company was in the process of dismissing Nathan Hubbard, the president of its Ticketmaster division. News of Mr. Hubbard’s imminent departure — for reasons that are still unclear — emerged on Monday evening.

According to the filing with the Securities and Exchange Commission, Mr. Rapino sold 640,000 of the 1.7 million shares he owned, not counting about 3 million stock options.

Jacqueline Peterson, a spokeswoman for Live Nation, said late Tuesday that Mr. Rapino sold the stock for estate-planning purposes. She said the shares represented a small portion of his total equity stake in the company, including options, and that this was the first time in the eight-year history of the company that Mr. Rapino had sold shares. Live Nation was spun off from Clear Channel Communications in 2005.

Since Live Nation merged with Ticketmaster in early 2010, the company’s stock price has mostly remained sluggish. But it has nearly doubled since the end of last year, when Irving Azoff, its former executive chairman and Mr. Rapino’s chief rival, left the company. The stock closed at $18.19 on Tuesday.

Last year, Mr. Rapino earned a total of $28.5 million from the company, including about $21.6 million in grants of stock and options, according to Live Nation’s most recent proxy report, in April.

Live Nation was believed to be close on Tuesday to signing an agreement terminating Mr. Hubbard’s employment, but the company has made no public statement about it.

In a research note on Tuesday, Ben Mogil, an analyst with Stifel Nicolaus, wrote that the reports of Mr. Hubbard’s departure appeared to be negative for the company because it came in the midst of a revamping of Ticketmaster’s technology platform, and because “it implies that some of the issues at play are personality driven.”

Article source: http://www.nytimes.com/2013/08/15/business/media/live-nation-chief-sells-nearly-12-million-in-stock.html?partner=rss&emc=rss

Google’s Earnings Beat Expections, but Revenue Does Not

The company reported first-quarter financial results Thursday that exceeded analysts’ expectations for profit, yet missed their expectations for revenue. Analysts blamed Google’s mobile business for the weakness, as consumers rapidly shift their computer use to mobile devices. Even though Google is even more dominant on smartphones than it is on computers, mobile ads cost less, which is a threat to search advertising revenue, Google’s lifeblood.

Net income in the first quarter rose 16 percent to $3.35 billion, or $9.94 a share. Excluding the cost of stock options and the related tax benefits, Google’s profit was $11.58 a share, up from $10.08 a year ago. Analysts had expected $10.69 a share.

The company reported first-quarter revenue of $13.97 billion, an increase of 31 percent over the same period last year. Net revenue, which excludes payments to the company’s advertising partners, was $11.01 billion, up from $8.14 billion. Analysts had expected net revenue of $11.3 billion.

“We had a very strong start to 2013,” Larry Page, Google’s chief executive, said in a statement. “We are working hard and investing in our products that aim to improve billions of people’s lives all around the world.”

Despite Google’s mobile challenge, investors who want a piece of the mobile revolution have been fleeing Apple and turning to Google instead. Over the last 12 months, Google’s share price has climbed 26 percent while Apple’s has fallen 36 percent as the company faces flat profits, slowing growth and growing competition from Google’s Android phones.

“Google replaced Apple in tech portfolios as the comfort food trade in mobile,” Jordan Rohan, an Internet analyst at Stifel Nicolaus, wrote in a research note.

Shares climbed 1.7 percent in after-hours trading Thursday after closing at $765.91 before the earnings news was released.

Google will not reveal the number of searches people perform on desktop computers or on mobile devices, or the amount of money Google makes from each of those searches. Instead, investors rely on a metric known as cost per click, or the price that advertisers pay Google each time someone clicks on an ad.

In the first quarter, that price declined 4 percent from both the previous quarter and the previous year, falling for the sixth consecutive quarter, and declining more than analysts had expected. They attribute that to the increase in less expensive mobile ads. Mobile ads cost about half as much as desktop ads, and receive only a quarter of the clicks that desktop ads do, according to BGC Partners.

Google has been scrambling to fix the mobile problem. In February, it announced the biggest change to its advertising program, called enhanced campaigns. Now advertisers, by default, will have to buy ad campaigns on smartphones and tablets when they buy ads on desktop computers. The program, which is scheduled to be fully in effect this summer, is expected to increase mobile ad prices because there will be more demand, something that pleases shareholders but frustrates advertisers.

Google has also benefited from another new type of ad, called product listing ads, which retailers are now required to buy if they want to appear in Google’s comparison shopping service. These ads now account for 17 percent of search ad spending on Google, and people click on them about 25 percent more than they do on text ads, according to Adobe, which manages $2 billion in online ad spending.

Google’s ad business remains the strongest on the Web. It is the leader in online search, display and mobile advertising markets, bringing in 41 percent of all digital ad revenues, according to eMarketer. On mobile devices, it earns 55 percent of ad dollars and 93 percent of search ad revenue, though it trails Facebook in mobile display ad revenue.

Article source: http://www.nytimes.com/2013/04/19/technology/googles-earnings-beat-expections-but-revenue-does-not.html?partner=rss&emc=rss

Wall Street Cash Bonuses Seen Higher in 2012

The securities industry’s bonus pool was expected to total $20 billion, Comptroller Thomas DiNapoli said at a press conference on Tuesday, up 8 percent from 2011 but below levels seen in 2006 and 2007, before the financial crisis.

DiNapoli said part of the 2012 bonus figure will also contain bonuses that are deferred for future years and does not wholly reflect cash that has been paid out already.

The average cash bonus rose an estimated 9 percent to almost $121,900 in 2012, the comptroller said. The average bonus rose more than the overall pool because the pool was shared among fewer workers than in 2011.

DiNapoli said he expects Wall Street to continue to cut jobs in 2013. Employment totaled 169,700 in December 2012, 1,000 less than the year before, according to the report. The securities industry in New York has regained only about 30 percent of the jobs lost since the crisis.

A healthy Wall Street is an important source of tax revenue for New York’s economy.

“It’s no secret that when Wall Street is strong all New Yorkers benefit,” DiNapoli said.

In 2012, about 14 percent of New York State tax revenue came from Wall Street, down from 20 percent before the financial crisis, while the industry’s contribution to New York City’s tax take fell from a peak of more than 12 percent to less than 7 percent.

Profits for the broker-dealer operations of New York Stock Exchange member firms was $23.9 billion in 2012, three times the $7.7 billion earned in 2011, and is one of the most profitable years on record, the report said.

The comptroller’s estimate is based on personal income tax trends. It reflects cash bonuses and deferred pay for which taxes have been withheld. The estimate does not include stock options or other forms of deferred compensation.

(Reporting by Edward Krudy; Editing by James Dalgleish and Maureen Bavdek)

Article source: http://www.nytimes.com/reuters/2013/02/26/business/26reuters-wallstreet-bonuses-2012.html?partner=rss&emc=rss

High & Low Finance: How Dell Became Entangled in Options

Now, nearly 25 years after it went public, Dell Inc. is reported to be considering leaving the public arena by going private in what would be the largest leveraged buyout in years. The company is no longer viewed as a leader, and its share price is less than it was a decade ago.

For most of its history, Dell appears to have followed advice from investment banks — advice that ill-served long-term shareholders to the benefit of corporate executives. The company paid out billions of dollars to repurchase stock, and only last year began to distribute some of the money to shareholders who chose to stick with it rather than bail out.

It has spent more money on share repurchases than it earned throughout its life as a public company. Most of those repurchases were at prices well above current levels.

Here’s the breakdown so far: Cash paid by the company to shareholders who were bailing out: $39.7 billion. Cash paid in dividends to shareholders who chose to hold on to their shares: $139 million. Current market value of the company: about $22 billion.

Along the way, profits for Dell executives from stock options soared to amazing levels, and Michael S. Dell, the founder, chairman and chief executive, evidently concluded he had erred by not taking options during the company’s early years.

In 1994, the company’s proxy stated “Mr. Dell does not participate in Dell’s long-term incentive program because of his significant stock ownership.” That changed in 1995, and in 1998 he received more than 20 percent of the options the company issued. His options eventually produced profits of more than $650 million for him.

This column is not about Dell’s business successes and struggles, which have been well covered elsewhere. It instead looks at the company as an example of financial management and mismanagement — and at the impact foolish accounting rules can have on corporate policies and behavior.

The primary accounting rule involved here was for stock options, but the general rule that companies do not need to record profits or losses on transactions in their own stock also played a role, allowing companies to routinely sell low and buy high without ever reporting a loss.

Until 2005, companies could pretend that stock options they handed out to employees and executives were worthless, and therefore not show them as an expense, as they would if they paid the employee in cash or even in shares of stock. The logic to the rule was that since the options would in the end be valuable only if the share price rose, there was no need to record an expense when the options were issued. Anyway, the companies said, this was a cashless expense. The company would not have to pay a penny, so why record an expense?

Accountants realized years ago that made no sense, and in the 1990s the Financial Accounting Standards Board, which sets American accounting rules, moved to change the rule. Companies, particularly technology companies, reacted as if capitalism itself was under attack. Make them account for options, they said, and people would stop buying their shares and America’s technological innovation would come to an end.

That argument did not persuade the accountants, but it — and a lot of campaign contributions — had more impact on Capitol Hill. In 1994, the Senate voted 88-9 in favor of a resolution threatening to put the accounting standards board out of business if it did not back down. The board surrendered, and it was another decade before it recovered its nerve.

One trouble with the argument that no cash was involved was that in practice it was far from true. Many companies, Dell among them, sought to reassure shareholders that they would suffer no dilution through the issuance of stock options, vowing to buy back as many shares as they issued through options.

Article source: http://www.nytimes.com/2013/01/18/business/how-dell-became-entangled-in-options.html?partner=rss&emc=rss

Wall Street Slides After Fiscal Setback

Stocks on Wall Street slumped Friday, depressed by the setback late Thursday in Washington on progress toward a budget deal.

By the close of trading, the Dow Jones industrial average had slid 121 points, or about 0.9 percent. The Standard Poor’s 500-stock index, a broader measure of activity, lost 0.9 percent as well, and the technology-heavy Nasdaq composite index slipped 1 percent.

“There’s such disarray about coming to a compromise even within the Republican Party,” said Doug Cote, the chief investment strategist for ING Investment Management. “The market just says, ‘They are not coming up with any feasible plan.’ ”

Trading volume was above the recent average as investors watched for developments in the political efforts to avoid a fiscal crisis. A Republican proposal to extend some lower tax rates was dropped Thursday night after G.O.P. leaders decided they did not have enough support to put it to a vote.

Shares had largely risen over the last two weeks as President Obama and the House speaker, John A. Boehner, inched forward with small concessions.

But Friday, the last full day of trading before Christmas, was also a day when certain stock options were scheduled to expire, adding to trading swings.

 Even with the day’s pullback, the Nasdaq index was up more than 15 percent for 2012 so far, the S.P. 500 had added 14 percent and the Dow was up 8 percent.

The markets fell despite a few more promising data points about the American economy. In November, personal income rose 0.6 percent, more than analysts projected, while orders for durable goods also came in better than expected, rising 0.7 percent, the government reported. 

Worries about the standoff in Washington also sent share prices down around the world, though less sharply than in the United States. Leading indexes were down 1 percent in Japan, 0.5 percent in Germany and 0.3 percent in Britain.

Oil futures fell about 1.5 percent in New York trading to $88.78 a barrel.

Wall Street will be closed on Tuesday, Christmas Day, but will be open for a half-day session on Monday.

Article source: http://www.nytimes.com/2012/12/22/business/daily-stock-market-activity.html?partner=rss&emc=rss

Bits Blog: Yahoo’s Mayer Gets Hefty Pay Package

Paul Zimmerman/Getty Images

10:10 p.m. | Updated More details added.

SAN FRANCISCO — Yahoo lured Marissa Mayer from Google with a lavish pay package that could total $129 million over five years — if she is able to get the company growing.

Yahoo disclosed details of its new chief executive’s compensation package in a regulatory filing on Thursday. It is larger than the pay package of the average chief executive in Silicon Valley, but not the largest among chiefs of publicly held technology companies.

Timothy D. Cook, Apple’s chief executive, has a compensation package valued at $378 million in salary, bonus and stock award that vests over 10 years. His annual base salary is $900,000.

Ms. Mayer’s pay package is higher than that of Meg Whitman, her counterpart at Hewlett-Packard. When H.P. hired Ms. Whitman, 55, as its chief executive, it offered her a $1 salary and stock options valued at $16.1 million that she cannot exercise unless H.P.’s stock meets certain targets by October 2013. She will also get a $6 million annual bonus if all goes well.

Ms. Mayer’s former boss at Google, Larry Page, receives only $1 in annual salary. But as a co-founder of the company, he owns more than 26.2 million shares of Google stock, which, at Thursday’s closing price of $593.06 a share, is worth about $15.5 billion.

Ms. Mayer’s package includes a $1 million annual base salary and a bonus of up to $4 million a year, depending on company performance. She will receive $12 million in the form of a stock payment this year — half in restricted stock, the remainder in options — and comparable awards in subsequent years. Yahoo will also give her a one-time “retention equity award” worth $30 million that vests over five years.

Google never had to disclose Ms. Mayer’s salary because she was not one of the highest-compensated executives at the company, although she was one of the most visible. But to make up for what she left on the table at Google, Yahoo said it would pay her a one-time “make whole” stock grant of $14 million.

“It’s big,” said Colin Gillis, an analyst at BGC Partners. “But Yahoo is a multibillion-dollar company. If she can create value, it’s a small percentage. If she doesn’t, she’ll join a long succession of Yahoo C.E.O.’s with sizable pay packages who did not add value.”

Yahoo offered Ms. Mayer more than it had her immediate predecessors, Scott Thompson and Carol Bartz. It offered Mr. Thompson a $1 million base salary and stock grants worth about $22.5 million. He left four months into the job, without severance, amid accusations that he had exaggerated his credentials on his resume, but he managed to keep $7 million in cash and stock grants that had already vested.

When Ms. Bartz joined Yahoo in 2009, the company offered her a $1 million salary and stock and cash grants worth $19 million, plus options worth five million shares that exercised at $11.73.

Ms. Mayer, known for holding extravagant parties, collecting expensive art and wearing designer gowns, does not lack for money. As Google’s 20th employee, she made millions in Google stock while running its search business and overseeing successful products like Gmail and Google Maps.

Article source: http://bits.blogs.nytimes.com/2012/07/19/yahoos-mayer-gets-hefty-pay-package/?partner=rss&emc=rss

DealBook: Bad Year for Wall Street Not Reflected in Chiefs’ Pay

Wall Street stocks and profits took a beating in 2011. But there is one corner of the Street that took a lighter hit: the compensation paid to chief executives.

Three big banks disclosed on Friday what their top executives will receive in deferred stock for their work in 2011. Such stock is expected to make up most of their bonus as banks are increasingly paying employees more in deferred stock. Those awards to top bank executives are coming as lower-level employees are finding out that their own bonuses will be much smaller than a year ago.

Brian Foley, a compensation expert in White Plains, said that for top executives, he would have expected “the belt to come in a few more notches” this year given the banks’ lackluster stock performance. He added that executive suite pay packages this year might further lower morale inside the banks.

“A lot of people in the middle took big hits this year,” he said. “It could create some big ‘us versus them issues’ as to why the rank and file are taking a bigger hit than the senior executives.”

Vikram S. Pandit, chief of Citigroup.Peter Foley/Bloomberg NewsVikram S. Pandit, chief of Citigroup.

The chief executive of Citigroup, Vikram S. Pandit, was awarded deferred stock in the bank valued at $3.7 million based on the company’s current price, according to a regulatory filing. This is on top of his annual base salary of $1.75 million, and brings his disclosed pay so far for 2011 to $5.45 million.

Citigroup is expected to disclose the rest of his pay, cash, be it upfront or deferred, in March. In addition, while not necessarily for work performed in 2011, Mr. Pandit last year was awarded a $16.7 million retention bonus, plus stock options that could add $6.5 million to the package’s overall value.

To be sure, Mr. Pandit has gone through some lean days, at least by Wall Street standards. In 2010, he was paid just $1, a salary he agreed to take until Citigroup returned to profitability, which it did that year.

While Citigroup was profitable again last year — earning $11.3 billion — it was far from a banner year for the big bank as it and its rivals had revenues dip amid economic troubles abroad and a sluggish domestic economy. Citigroup’s stock fell 44 percent in 2011, and many employees were told this week they would be receiving no or small bonuses.

Jamie Dimon, chief of JPMorgan Chase.Randy L. Rasmussen/The Oregonian, via Associated PressJamie Dimon, chief of JPMorgan Chase.

Shares of Citigroup’s rival, JPMorgan Chase, also had a rough year, falling almost 22 percent. Still, JPMorgan’s chief executive, Jamie Dimon, was awarded $17 million in equity-linked stock for his work in 2011, according to a regulatory filing. Last year Mr. Dimon received $17 million in equity awards around this time of year and his total pay for the year came to $23 million. His total pay is expected to be roughly the same this year, according to a person close to company but not authorized to speak on the record.

James P. Gorman, chief of Morgan Stanley.Jin Lee/Bloomberg NewsJames P. Gorman, chief of Morgan Stanley.

Morgan Stanley’s shares dropped 44 percent in 2011. On Friday, it released details on all its chief executive’s pay. James P. Gorman is taking a 25 percent pay cut from 2010. Mr. Gorman will receive $9.7 million in deferred compensation for his work last year, according to a regulatory filing. This number includes $4.7 million in deferred cash and equity linked stock and an additional $5 million in restricted stock. In 2010, Mr. Gorman received $7.4 million in stock and his total compensation for the year was $14 million. These numbers include Mr. Gorman’s base salary of $800,000.

Citigroup also disclosed that its chief operating officer, John P. Havens, received a stock award valued at $3.47 million. Its consumer banking chief, Manuel Medina-Mora, got $2.64 million and its chief risk officer, Brian Leach, received an award valued at $2.36 million, according to regulatory filings.

At Morgan Stanley, pay for other senior executives was down roughly 20 percent. The wealth management chief, Gregory J. Fleming, and Paul J. Taubman, co-head of institutional securities, were both granted restricted stock valued at $3.4 million. Colm Kelleher, the other co-president of institutional securities, received restricted stock valued at $1.9 million. His grant is less because he is based in Britain and there are different requirements on the mix of his pay. Ultimately, he will receive the same as Mr. Fleming and Mr. Taubman, a company spokesman said. Morgan did not release how much deferred cash these senior executives will receive.

At JPMorgan, the head of investment banking, James E. Staley, was granted restricted stock valued at $7.8 million and he has options valued at an added $2 million. Mary E. Erdoes, head of asset management, received restricted stock valued at $7.1 million and a further $2 million in options.

Article source: http://feeds.nytimes.com/click.phdo?i=035753a40bf6486c324281bb763716c8

Economix Blog: More on How Stock Options Are Valued

Several readers wrote with additional questions about the tax treatment of stock options. Given the complexity of the issue, it’s not surprising that there might be confusion. So here is a more detailed explanation, using the example cited in the article, involving Sirius XM radio:

Mel Karmazin, the chief executive of Sirius XM Radio, was granted options to buy 120 million shares at 43 cents each. If he could have exercised them at the grant date, at that price, the shares would have been worth $51 million. He would have paid that amount and had no profit.

But options cannot be exercised until they are vested and some are never exercised at all  —  sometimes people leave the company before the options vest or the stock price drops and doesn’t recover before the options expire. So companies use various models (like Black-Scholes) to estimate the fair market value of the options that they report as an expense on their financial statements.

In this case, Sirius XM calculated a fair market value of $35 million and took that as an expense on its financial books. But on its tax return, the company is not entitled to deduct anything for options until they are actually exercised. And when the company does deduct the cost of those exercised options, the amount of the deduction is the appreciation in the value of the stock.

If the 120 million options were to be exercised at the current stock price of about $1.80 a share, they would generate $216 million in stock. Mr. Karmazin would realize a gain of $165 million (the $216 million value of the stock minus the $51 million he would spend to exercise the options) which would be taxed as ordinary income, presumably at the top rate of 35 percent. Sirius XM would be eligible to take “a mirror deduction” of $165 million. At the top corporate rate of 35 percent, that would provide Sirius XM a $57 million reduction in taxes.

The fact that the individual who exercises the option is taxed on income equal to the “mirror deduction” taken by the company also led some readers to write that the policy is revenue neutral and therefore not a tax break at all. But the bipartisan Joint Committee on Taxation has estimated that limiting companies’ deduction to the amount they declare as an expense would increase federal revenue by $25 billion over the next decade.

Article source: http://feeds.nytimes.com/click.phdo?i=7afb739864bb1907e97e13d8213e21ee

Tax Breaks From Options a Windfall for Businesses

Now, the corporations that gave those generous awards are beginning to benefit, too, in the form of tax savings.

Thanks to a quirk in tax law, companies can claim a tax deduction in future years that is much bigger than the value of the stock options when they were granted to executives. This tax break will deprive the federal government of tens of billions of dollars in revenue over the next decade. And it is one of the many obscure provisions buried in the tax code that together enable most American companies to pay far less than the top corporate tax rate of 35 percent — in some cases, virtually nothing even in very profitable years.

In Washington, where executive pay and taxes are highly charged issues, some critics in Congress have long sought to eliminate this tax benefit, saying it is bad policy to let companies claim such large deductions for stock options without having to make any cash outlay. Moreover, they say, the policy essentially forces taxpayers to subsidize executive pay, which has soared in recent decades. Those drawbacks have been magnified, they say, now that executives — and companies — are reaping inordinate benefits by taking advantage of once depressed stock prices.

A stock option entitles its owner to buy a share of company stock at a set price over a specified period. The corporate tax savings stem from the fact that executives typically cash in stock options at a much higher price than the initial value that companies report to shareholders when they are granted.

But companies are then allowed a tax deduction for that higher price.

For example, in the dark days of June 2009, Mel Karmazin, chief executive of SiriusXM Radio, was granted options to buy the company stock at 43 cents a share. At today’s price of about $1.80 a share, the value of those options has risen to $165 million from the $35 million reported by the company as a compensation expense when they were issued.

If he exercises and sells at that price, Mr. Karmazin would, of course, owe taxes on the $165 million as ordinary income. The company, meanwhile, would be entitled to deduct the $165 million as additional compensation on its tax return as if it had paid that amount in cash. That could reduce its federal tax bill by an estimated $57 million, at the top corporate tax rate.

SiriusXM did not respond to repeated requests for comment.


Dozens of other major corporations doled out unusually large grants of stock options in late 2008 and 2009 — including Ford, General Electric, Goldman Sachs, Google and Starbucks — and soon may be eligible for corresponding tax breaks.

Executive compensation experts say that barring another market collapse, the payouts to executives — and tax benefits for the companies — will run well into the billions of dollars in the coming years. Indeed, of the billions of shares worth of options issued after the crisis, only about 11 million have thus far been exercised, according to data compiled by InsiderScore, a consulting firm that compiles regulatory filings on insider stock sales.

“These options gave executives a highly leveraged bet that stock prices would rebound from their 2008 and 2009 lows, and are now rewarding them for rising tides rather than performance,” said Robert J. Jackson Jr., an associate professor of law at Columbia who worked as an adviser to the office that oversaw compensation of executives at companies receiving federal bailout money. “The tax code does nothing to ensure that these rewards go only to executives who have created sustainable long-term value.”

For some companies, awarding stock options can seem like a tempting bargain, since there is no cash outlay and the tax benefits can exceed the original cost.

Article source: http://feeds.nytimes.com/click.phdo?i=ea603bc42d2025fe544d3253c0042b62

Funny or Die: Groupon’s Fate Hinges on Words

RACHEL HANDLER is struggling to say something funny or perhaps amusing or at least clever about horses. Her mind is empty. She can’t recall the last time she was on a horse or even saw a horse. The minutes fly by. Horses are nothing to joke about.

Ms. Handler writes for Groupon, the e-mail marketer that was casually founded in the pit of the recession and almost immediately became a sensation worth billions. The musicians, poets, actors and comedians who fill its ranks are in a state of happy disbelief over the company’s success. In the age-old tradition of creative folk, they were just looking for a gig to support their art. Now stock options have made some of them seriously wealthy, at least on paper.

Poets who work here give away copies of their verse in the reception area. One poem begins like this:

closed my eyes and I was nothing

yeah, I was running

I was nothing

and then I was flying

That just about sums up Groupon’s brief history, which has been meteoric even by dot-com standards. Groupon, which is expected to go public within the next year, is either creating a new approach to commerce that will change the way we eat and shop and interact with the physical world, or it is a sure sign that Internet mania is once again skidding out of control. Or both.

The big Internet companies owe their dominance to something singular that shut out potential competitors. Google had secret algorithms that gave superior search results. Facebook provided a way to broadcast regular updates to friends and acquaintances that grew ever more compelling as more people signed up, which naturally caused more people to sign up. Twitter introduced a new tool to let people promote themselves.

Groupon has nothing so special. It offers discounts on products and services, something that Internet start-up companies have tried to develop as a business model many times before, with minimal success. Groupon’s breakthrough sprang not just from the deals but from an ingredient that was both unlikely and ephemeral: words.

Words are not much valued on the Internet, perhaps because it features so many of them. Newspapers and magazines might have gained vast new audiences online but still can’t recoup the costs from their Web operations of producing the material.

Groupon borrowed some tools and terms from journalism, softened the traditional heavy hand of advertising, added some banter and attitude and married the result to a discounted deal. It has managed, at least for the moment, to make words pay.

IN 177 North American cities and neighborhoods, 31 million people see one of the hundreds of daily deals that Ms. Handler and her colleagues write, and so many of them take the horseback ride or splurge on the spa or have dinner at the restaurant or sign up for the kayak tour that Groupon is raking in more than a billion dollars a year from these featured businesses and is already profitable.

There used to be a name for marketing things to clumps of people by blasting messages at them: spam. People despised it so much it nearly killed e-mail. The great achievement of Groupon — a blend of “group” and “coupon” — is to have reformulated spam into something benign, even ingratiating.

Ms. Handler is working on an offer for Pine River Stables in St. Clair, Mich., a place she has never been to. It is the stables’ first deal on Groupon: $18 for a one-hour ride for two people, half the regular price.

It takes Ms. Handler about 50 minutes to assemble the write-up, which is a few straightforward paragraphs explaining the details with the occasional gag as sweetener (The stables are closed “on Wednesdays, in the event of bad weather and on Horse Christmas.”) She puts off writing the first sentences, the ones that are supposed to seduce every Groupon subscriber in Detroit — either to go horseback riding or at least keep reading Groupon’s e-mails.

Still stumped, she browses an online thesaurus. She studies the Pine River Web site for the umpteenth time. She wishes she lived in a world without horses.

Article source: http://feeds.nytimes.com/click.phdo?i=29c6829075651402aecaa302e7844010