The proposed Paramount-Warner Bros. Discovery merger, which the principals are trying to get done quickly before state attorneys general can react with a challenge, is terrible for a host of reasons, the most politically salient being the fairly explicit effort to convert a healthy chunk of American media organizations into a swamp of pro-MAGA propaganda. But perhaps the worst part is how bad a business deal it is, and that has implications for both the future of Hollywood and the ability for states to actually block it.

The deal is tied up with so much debt that it virtually guarantees layoffs the likes of which Hollywood hasn’t seen before. That’s going to mean far less output from the suite of properties under Paramount and Warner’s control. And it will mean that the production apocalypse which has been brewing since the pandemic, the end of Peak TV, and the contraction of runaway green lights for streaming networks will grow still more apocalyptic, playing into one of the key arguments antitrust enforcers can make about this deal: that it will greatly lessen competition in the entertainment sector.

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The entire reason Warner Bros. was selling itself was because of several bad mergers where it took on significant amounts of debt that it couldn’t dig itself out of, despite having one of the more impressive years in Hollywood history. Paramount is “solving” this problem with … much more debt, with little hope for making enough revenue to service it considering that it will carry the giant weight of doomed legacy cable channels. Their only way out will be by pulverizing their staffs with layoffs that will cripple the core business.

In its initial $30-a-share bid for Warner Bros., Paramount was financing the purchase with up to $84 billion in pro forma debt. That has now risen to $31 a share, tacking on roughly another $2.5 billion, plus a “ticking fee” of 25 cents per share per quarter for every quarter the deal doesn’t close after September 30 of this year. Paramount is also paying Netflix’s breakup fee of $2.8 billion. Paramount has not released the financing details for the new deal, but it’s likely to be an even higher debt load.

Perhaps the worst part of the Paramount-Warner Bros. merger is how bad a business deal it is.

Even at $84 billion, however, this means a leverage ratio of seven times earnings, making it “the largest proposed leveraged buyout in history” according to a Netflix press release. Netflix was trying to trash-talk the Paramount deal before they gave up on acquiring Warner Bros., but they’re not wrong: 7x is an astounding amount of leverage. It puts this deal in the range of several notorious private equity deals that inevitably led to layoff carnage.

The legendary Kohlberg Kravis Roberts (KKR) $24.8 billion deal for RJR Nabisco, chronicled in the book Barbarians at the Gate, had a 7.5x leverage ratio. KKR would ultimately cut 46,000 jobs and shed $6.2 billion in assets within six years of the purchase. When KKR and two partners bought Toys ‘R’ Us in 2005, that deal had about a 7x leverage ratio. Toys ‘R’ Us slid into bankruptcy and 33,000 workers lost their jobs.

Paramount actually addressed the huge leverage play it is making for Warner Bros. on an investor call in December. Chief strategy officer Andrew Gordon said this: “We expect that at closing, how the agencies will look at our pro forma capital structure will lead them to an investment-grade rating based on our deleveraging over a 2-year period post close. So we will be below, call it, at closing with accounting for synergies around 4x. And we’ll delever quickly to below 3x and almost 2x over the convening 2 years to 2.5 years. So that’s where we are on leverage.”

Let’s translate that into English. He’s saying that Paramount will engage in “deleveraging” to reduce that ratio down from 7x to as low as 2x in just a couple of years. There aren’t very many ways to actually do this.

I guess you could create such a compelling product that you bring in gobs of revenue and pay off the debt. Keep in mind that Paramount’s main problem financially prior to this deal was that it had a big slice of nonperforming cable channels, and this deal … adds a bunch of nonperforming cable channels. There may not be any cable television in a few years, and this deal sets up Paramount to be the biggest loser by far in that scenario. Paramount CEO David Ellison may just want to propagandize America through CNN (What happens when nobody watches the new-kid propaganda because they have the genuine article in Fox News? The audience is already leaving CBS in droves), but his creditors won’t care about his political project when money is being lost hand over fist.

Maybe interest rates would come down enough to lower the leverage ratio. That’s certainly a Trumpian play, and what he wants to happen at the Federal Reserve. But to reduce enough to get Paramount to its target would require a massive economic slowdown that would crash Paramount’s revenues.

Maybe Paramount can scrape up some more equity investors to pay off the debt. They’ve already probably maxed out on this, with a lot of equity coming from Gulf states like Saudi Arabia. Already this threatens review from the Committee on Foreign Investment in the U.S. (CFIUS), and more Middle Eastern money pouring in would get those reviews ramped up further. But the biggest problem is that the appetite for buying pieces of Paramount-Warner is likely maxed out.

Why Is Warner Bros. for Sale at All?

Maybe Larry Ellison, father of Paramount chief David, can eat the debt. But his money is tied up in Oracle, which lost $80 billion in value just last December and stands to lose more ground at the leading edge of the AI hype bubble. That well of cash isn’t as unlimited as people might assume.

So that leaves layoffs on the order of a Toys ‘R’ Us or Nabisco-style disaster. And indeed Gordon gave the game away in the same investor call, saying that he foresaw $6 billion in “synergies” from the merger, specifically by cutting “duplicative operations across all aspects of the business.” That means massive job loss.

Warner Bros. Discovery had 35,000 employees in 2024, and Paramount had about 18,600. We’ve already seen the new leadership at Paramount get rid of some of its most creative executives to install its own team. But they’d have to cull something like half the merged company, and still somehow make the same revenue, to meet that deleveraging target.

Here’s why this matters. Obviously tens of thousands of job losses is a tragedy. There will also almost certainly be a lower output of television and film than if the two companies had remained separate. That means fewer slots, fewer bids, and weakened bargaining power for creators. This rises to the level of an antitrust problem, along the lines of the argument the Biden Justice Department successfully made to block the Simon & Schuster/Penguin Random House merger in 2022. If the result of a Paramount merger is that fewer people can get their movies made and their pay is reduced as well, that impact of competition is sufficient to block the deal.

So this private equity–style play isn’t just hazardous to workers, both those in entertainment production and distribution (kiss movie theaters goodbye if the deal goes through, as they won’t have enough content to remain viable, and what movies they get will probably accompany lower fees from the consolidated studios). It is so dangerous from a competition standpoint that there’s a legitimate case to be made to stop it.

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David Dayen is the executive editor of The American Prospect. He is the author of Monopolized: Life in the Age of Corporate Power and Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud. He co-hosts the podcast Organized Money with Matt Stoller. He can be reached on Signal at ddayen.90.