Can Turkey's government save Demirören?

One of the most striking features of the Justice and Development Party (AKP) government in Turkey has been the coterie of businesses that have worked closely with the ruling party and in return been propelled to wealth beyond imagination.

Among the chief members of this group is the Demirören family, whose dazzling wealth was on display at last month's wedding of Yelda Demirören to another young heir from Turkey’s elite, Haluk Kalyoncu of the Kalyon Group.

Demirören Holding has interests in energy, manufacturing, real estate and education, as well as the media wing that has become a classic feature of any AKP-linked oligarch.

It has also continued securing lucrative contracts and major tenders despite suffering a string of high-profile failures that call into question the group’s business acumen and highlight the pressure the AKP’s mismanagement of the economy has placed on the country’s businesses.

Most recently, the company’s management of Turkey’s leading betting firm, İddaa, has already hit the rocks just months after Demirören’s subsidiary won the tender.

It did this with a bid that undercut a partner of the mobile giant Turkcell, the only other competitor whose bid was accepted by the auction commission. While Turkcell’s bid asked for a 0.5 percent cut of profits from İddaa, Demirören not only asked for just 0.2 percent, but also promised the government a guaranteed 200 billion lira over the 10-year term. At the time the bid was lodged, that amounted to around $38 billion.

The bid, and the undertaking to earn an average of 20 billion lira per year for the next decade, already looked unrealistic given that the betting firm only earned 10 billion lira last year.

But the firm’s performance has been poor so far, even given the current economic travails faced by Turkey, which entered a recession in the final quarter of 2018 and is still struggling with high unemployment, high inflation and an unstable lira.

The government projected a 21.1 percent tax revenue increase from betting in its 2019 budget, which should bring the total tax raised to 1.4 billion lira ($231 million) by year’s end. In the first four months of 2019, income from betting increased just 4.4 percent.

With growth of 1.6 percent over the past 12 months, gambling has gone in the past year from being one of Turkey’s most consistent sectors for growth, with an annual average of 10 percent since 2006, to a sector that is crawling at a snail’s pace.

At this rate, it looks unlikely that Demirören will meet its goal of 200 billion lira by the end of its tender period. It is unclear what penalty will be meted out for this failure, but Demirören Group’s part owner, Yıldırm Demirören, has already had to give up his prestige position at the head of Turkey’s Football Federation as a result of the conflict of interest represented by the İddaa tender.

Demirören Group met with similar trouble in another of its high-profile ventures, the construction of the Demirören Shopping Centre in a prime location on Istanbul’s Istiklal Avenue, the city’s main pedestrian thoroughfare and a key tourist and shopping destination.

Despite the central location and massive investment, the mall has been deserted by a long list of major brands, which found their shops unable to turn a profit.

The group again hit serious trouble after acquiring Turkey’s fifth largest fuel distribution company, Total Türkiye, for $356 million in 2016.

This time, Demirören found itself under severe pressure when the government switched from a sliding scale system to set prices, a move that has put many distribution companies out of business and is still fuelling rumours that international companies are preparing to withdraw from Turkey.

Perhaps the most sensational business failing of all is in the sector that has helped Demirören remain in the government’s good graces: the media.

The group had already acquired media outlets in 2011, when it purchased the high-circulation daily newspapers Milliyet and Vatan. In classic style for AKP-linked businesses, it turned these newspapers into openly pro-government outlets, and they subsequently lost readers and market share.

In March 2011, Vatan had the 15th highest circulation in Turkey’s crowded newspaper market, with a circulation of over 110,000. Last October, it ended publication of its print edition to go digital only.

Demirören repeated the model in even more sensational fashion in March 2018, when it snapped up outlets owned by Doğan Media Group, the last mainstream independent media group in the country.

The acquisition included Hürriyet, consistently the highest circulation newspaper in the country, and another daily, Posta, as well as the popular television channels CNN Türk and Kanal-D.

The $916 million sale was funded by credit from the government-controlled Ziraat Bank to the tune of $675 million. A few months after the purchase, Erdoğan Demirören, who had founded the firm and steered it to considerable success, passed away at age 80.

Unfortunately for Demirören Holding, even the highly favourable terms offered by the bank could not save it from the economic woes Turkey has suffered over the past year under the AKP. When the deal was made, the lira’s value stood at around 3.8 to the dollar. Months later, amid a currency crisis provoked in part by the AKP’s combative foreign policy dealings with the United States, the value had dropped to 6 against the dollar, a fall that made the purchase, in lira terms, extraordinarily costly.

Worse still, the new management imposed on what were once respected media outlets has turned them into carbon copies of other pro-government outlets, which now make up around 90 percent of Turkey’s media landscape.

Thus, Hürriyet’s daily circulation has fallen by 80,000 to 240,000, taking it from the peak of the newspaper sector to a position below its rivals Sözcü and Sabah. Its website, which once attracted the highest volume of traffic of any Turkish news site, is now not even in the top ten.

CNN Türk, meanwhile, has sacrificed the respect of its viewers to instead pay lip service to AKP leaders, for whom it provides blanket coverage, while also engaging in the kind of self-censorship and mudslinging that has become a calling card of pro-government outlets.

In the run-up to the March 31 local elections, in the middle of a live interview with Ekrem İmamoğlu, the opposition candidate for Istanbul mayor, the channel cut away to yet another speech by President Recep Tayyip Erdoğan. On Monday night, in the lead-up to the June 23 Istanbul rerun election, it did essentially the same thing, ending an İmamoğlu interview half an hour early apparently because he was pointing out the AKP’s gross mismanagement of Istanbul's finances.

Also prior to the local elections, CNN Türk and other outlets owned by Demirören misrepresented statements by the co-leader of the pro-Kurdish Peoples’ Democratic Party, to make it appear he had said his party would gain control of municipalities won by candidates from other opposition parties.

Kanal-D’s policies under Demirören ownership have had a similar effect on the channel’s prestige. It has gone from having one of the top 15 news programmes in Turkey to now languishing below the top 30.

But that, perhaps, is beside the point for business groups like Demirören. With its media wing doing the government’s bidding, it will continue to win more lucrative tenders and likely be shielded from the consequences when its projects go south.


The views expressed in this column are those of the author and do not necessarily reflect those of Ahval.

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