James O'Shea lays out exactly how many millions were wasted on lawyers, investment bankers and bonuses to managers with no future stake in the company
It’s hard to say who comes out worse in James O’Shea’s new book, “The Deal from Hell: How Moguls and Wall Street Plundered Great American Newspapers” — the Tribune Company itself, Sam Zell, Mark Willes, the Chandler family, JP Morgan or any one of the myriad senior executives who cut the bottom line while pocketing huge bonuses.
The journalists don’t come out looking so great either.
I already knew the story and even so, reading this tale of bad-to-worse makes me seriously depressed.
Why did anyone think that a trash-talking billionaire, Zell, who proudly stated he knew and cared nothing about newspapers, would be able to save The Los Angeles Times and other Tribune papers?
Here’s how it turned out: bankruptcy, and an atmosphere so hostile to journalism that talent fled while everybody else cowered in fear.
O’Shea does a service in laying out precisely how much precious cash was wasted on bonuses to senior managers to close deals that had no long-term strategy for success, investment bankers with no stake in the future of the company and lawyers sorting through the bankruptcy.
For those who value newspapers and what they contribute to society, the numbers are enough to turn your stomach:
* $283 million in investment banking fees to close the $7 billion “deal from hell” — Zell’s creative takeover of the Tribune Company, which used an employee stock ownership plan (ESOP) to avoid taxes.
* $41 million in salary, bonus and stock to Tribune CEO Dennis Fitzsimons, who presided over the decline of the company, for closing the deal.
* $10 million in bonus, salary, stock to John Reardon, president of Tribune Broadcasting.
* $13.8 million to Don Grenesko, CFO, bonus, salary and stock.
* $300 million in legal fees over the bankruptcy fight.
That would be more than enough cash to run the Los Angeles Times and the Chicago Tribune for several years. In other words, they could have made the product better, instead of coming up with endless ways to refinance and cut operating costs.
But that’s starting at the end of the story.
O’Shea spent three decades at the Chicago Tribune and then led the Tribune-owned Los Angeles Times for a year, giving him a front-row seat to the historic drama of decline at a great newspaper company.
He sums it up succinctly: “The greed, incompetence, corruption, hypocrisy and arrogance of people who put their interests ahead of the public” add up to a tale of corporate disaster.
As we headed into the 21st century, the broad strokes were well known.
At the Chicago Tribune, as at the Los Angeles Times and other papers, circulation was in decline, advertising was also ebbing, the internet was on the rise and ideas about how to counter these trends were remarkably simple: fire people, cut costs.
O’Shea does a good job of sketching the historic backdrop of the Tribune Company, and reminds us that this is not the first major dislocation in American newspapers. Thousands were laid off in the 1930s, many never to find work again, as cities with a half-dozen newspapers found markets to sustain only a few.
And again, he reminds us that newspapers had been severely downsizing non-editorial staff since the mid-1970s, as technological efficiencies reduced the need for manpower at the printing presses.
Between 1975 and 1990, he tells us, production staffs were cut by 50 percent or more. Not surprisingly, this coincided with Tribune Company going public in 1983, and pushing hard to increase profit margins.
Which it did.
The Chandler family agreed to what had previously been unthinkable, to sell the L.A. Times to the Tribune Company, cashing in on their historic legacy.
Tribune had been bought, merged with the L.A. Times and bought again, each time by partners not particularly interested in the legacy of the journalism that is the essence of America’s great newspapers.
Each new owner and dealmaker thought that he could fix it by cutting further. No one had the thought that investing in the new direction journalism was going made any sense.
Much more than “Page One,” the new documentary about The New York Times, the “Deal from Hell” gives us a serious and informed view of the destruction of an American journalistic institution (or two of them, in this case).
O’Shea shares some fascinating inside stories based on his front-row seat as editor in chief and his long-time relationships with people who gave him interviews for the book.
We learn that the famed “cereal killer” Mark Willes, the manager who came from General Mills to be CEO of Times Mirror in 1995 with a business-first approach, was not all bad. (Not counting the time he brought in consultants who declared that the shredded paper “smelled like fish,” where it needed to smell like “Starbucks and coffee cake.”)
Those of us who only knew Willes as a clueless bottom-liner responsible for the Staples scandal may be surprised to learn that he vastly improved the financial outlook at the Times in the late 1990s. He shut the money-losing New York Newsday and cut jobs, along with the newsstand price, and created new sections and editions to broaden the reader base.
Under Willes, circulation rose, operating profits soared and earnings per share increased more than 50 percent, O’Shea writes.
It wasn’t enough for the Chandlers, the family that held the controlling stake in Times Mirror. Despite being paid $2.1 billion in dividends under Willes’ tenure, the Chandlers decided to cash out further. Without telling Willes, they sold the company to Tribune.
According to former managing editor Leo Wolinsky, Willes would wander the halls and weep after this stunning betrayal.
There’s delicious gossip in Trib CEO Dennis Fitzsimons not knowing that he needed a passport to travel to Istanbul, and revealing his main source of knowledge about the Iraq war — his friend Geraldo Rivera.
The sexist, potty-mouthed dirt on Zell and his frat-boy buddies has been well documented previously by David Carr at The New York Times.
But the journalists don’t look too swell, either. They were arrogant and clueless about the need for change in their long-protected newsrooms. They were slow to understand that this was a battle for survival, slow to adopt the changes the internet demanded.
In his reporting, O’Shea relies too heavily for my taste on Wolinsky, a senior editor in the L.A. Times newsroom. And he has high praise for John Montorio, someone whose reputation in the newsroom and beyond was not consistent with that view.
These are among those who failed to push toward the new type of journalism that defines our era — immediate, informed by a strong point of view and open to interaction with the reader. (Oddly, Wolinsky praises Willes for believing that “our future was squarely in print. He ignored the internet, thought it was just a fad.”)
Tribune, about to emerge from bankruptcy in a matter of months, is one of the most extreme examples of what has happened to American newspapers in the past decade. It is an extraordinary saga of greed, arrogance, self-interest and lack of vision.
At the end of bankruptcy, the Tribune Company is likely to end up being run by Jamie Dimon and his JP Morgan Chase.
It’s the end game for Tribune Company, and we are all the worse for it.