AOL's Shameless CEO Bailout

Tim Armstrong, AOL CEO, just bought a company from... Tim Armstrong, investor. The official line is that the deal is on the up and up, since the consummate salesman won't be taking any profits off his stake. Rich.

Consider, first, that AOL is buying Armstrong out of what sounds like a dud company — the sort of startup that can devour an investor's equity entirely.

Armstrong's Patch is a "hyperlocal" news website, mixing reporting from its own journalists with contributions from volunteers. Though it's had precious few successes, citizen journalism remains notoriously tricky from an editorial standpoint, to say nothing of profitability. And Patch has been ambushed with some formidable competition: The New York Times rolled out its own local blogging effort in the exact three communities where Patch debuted.

For this, AOL paid around $10 million, helping Armstrong recoup his otherwise imperiled seed investment?

Then there's the question of AOL's real interest. It's far more likely the company bought Patch to nail down Armstrong than out of some sudden resurgence of interest in local news (as Kara Swisher of All Things D notes, AOL had already been down this road with Digital City and CityGuide).

AOL wanted to hire Armstrong from Google just a couple of months before AOL detached from Time Warner. There would have been negotiations. And what better time for savvy salesman Armstrong to mention his growing interest in Patch than when AOL hoped to focus his attention elsewhere? "Distracted by Patch? We'll take it off your hands for you."

That sort of arrangement wouldn't be particularly transparent for AOL shareholders, who should know where compensation ends and strategic investments begin. But presumably Armstrong can lead them to the same conclusion as his former bosses: That he's worth every penny.