The Deal from Hell

by James O'Shea

  Of course, in a building full of journalists, someone quickly checked whether Gandhi had ever uttered these words and found experts who debunked the notion. When someone with a magic marker came along and put an (S) is front of every reference to “he,” Michaels went into orbit. A huge blue banner was draped over the sign, relocated to the Tribune Tower lobby. It read: “This poster was defaced shortly after it was placed outside of the Chicago Tribune newsroom.” As the bizarre become commonplace, Lipinski started wondering how long she could tolerate the situation.

  Even before phase two of the deal closed, the banks had pressed Zell to sell assets, particularly the Chicago Cubs, a team then valued at $1 billion that didn’t generate a lot of cash flow. The banks figured the sales proceeds could be used to reduce debt without hurting the cash stream needed to pay down the rest of the loans. Zell soon figured out a way to structure a deal in which he could maximize the price and get favorable tax treatment by selling the team to interested buyers, and Wrigley Field, its historic stadium, to the state, using tax-exempt bonds to finance the deal, creating a situation similar to that of U.S. Cellular Field, which the state had built for the Chicago White Sox.

  His negotiators began some backroom dealings with representatives of Illinois Governor Rod Blagojevich, a controversial figure who at the time was being investigated for using state contracts to reap political donations. After another lunch in his office, Zell had told Lipinski that the Tribune should be tougher on Blagojevich. Unaware that Zell was in negotiations with the governor over the ballpark, she informed him that the paper had aggressively investigated the governor and that the editorial board had already called for his resignation. “Don’t be a pussy,” Zell responded. “You can always be harder on him.” The paper didn’t knuckle under to Zell’s pressure, but when Lipinski later learned of the Zell negotiations, she became even more disenchanted with him. He eventually sold the Cubs for $900 million. But his dealings with Blagojevich cost him more than a red face. As one insider privy to the deal later told me, had Zell acted more quickly, he probably could have gotten one billion or more for the team: “He left $100 million or more on the table.”

  Lipinski is neither a prude nor Pollyanna, and she’s no stranger to foul language. Anyone who has ever inhabited a newsroom knows the language can get raw. She had done layoffs before and had been informed by Scott Smith that she would have to do a new round soon. But in June 2008, Zell and his team forced Smith out. In July, it was Hiller’s turn. Zell called him into his office in Chicago and said he was going to make a change in the leadership in Los Angeles. Both men had employment agreements that called for severance benefits of $12.4 million and $15.4 million, respectively, in salary, tax gross-ups, and stock options.

  Bobby Gremillion had been named acting publisher in Chicago and met with Lipinski. Unbeknownst to him, she suspected her resignation was imminent but wanted to take responsibility for what she hoped would be a final round of layoff discussions so it didn’t have to be the first thing her successor faced in assuming command of the newsroom. Gremillion told her what level of layoffs he required, then added that he needed two more things from her—to “let Lee Abrams on the floor” to redesign the paper and to work with Gerry Kern on his plans, both of which she had resisted. “I said, ‘Look, Bobby, I have a lot to do today to get this layoff planning under way. How about we talk about the rest tomorrow?’” Lipinski met with her senior managers to deliver the grim layoff news and map out a plan for getting there. Early the next morning, she returned to Gremillion’s office and told him she had decided to leave the paper. He spit out his coffee. “What?” She handed him a resignation letter. “But what will you do?” he asked. She said she didn’t know but she couldn’t stay. Later that day, she received a call from William Osborn, who was still on the Tribune board. He told her how sorry he was that she was leaving the paper but that he knew that things had become very difficult at the Tribune.

  She also met with Michaels, who tried to pitch her to stay, promoting the virtues of what he claimed would be expanded newsgathering capacity as a result of closer working ties with WGN. Lipinski told him she was not resigning over resource issues and that she had come to see him to stress how untenable the culture had become, that conditions for women in particular were intolerable, and that her views were widely, if quietly, shared by others around the company who were exposed to the new class of managers. For a moment, Lipinski thought she had gotten through. Michaels said he had been eager to compel change at Tribune Company but was probably due for a course correction. “We’ve gone too far,” he conceded. Lipinski talked about newsroom culture in particular, and how journalists were not choirboys, but that colorful language or stories had a purpose and were not told merely to threaten or insult. They discussed one story in particular—an Illinois congressman’s affair with a teenage girl and the Tribune’s unprecedented decision to publish a transcript of the federal government’s recording of a sexually-explicit phone call. But the point was lost on Michaels. “Blow job? You put the word blow job in the paper? Excellent!” Lipinski left her resignation letter on his conference table. I attended her going-away party in the Billy Goat Tavern.

  With Michaels’ blessing, Kern was named editor of the Chicago Tribune. At long last, he’d gotten the job he so coveted. For his managing editor, he tapped Jane Hirt, the Redeye editor and proponent of a “Second Life for Cats.” Much would be made in the ensuing months of the leadership of Tribune Company, as the Chicago Tribune turned a blind eye toward the raunchy conduct of Michaels and his team. Even Osborn and the board of Tribune Company were aware of Michaels’ antics. For once, something had happened about which FitzSimons and I agreed. I decided life wasn’t too bad after losing a job.

  I figured the foul language and juvenile conduct in the newsroom would pass. I was far more concerned with what Michaels and company would do to the Chicago Tribune. At one going-away party in August, I saw Jim Kirk, then the Tribune’s associate managing editor for financial news, arguing, red-faced, with editors on his cellphone. When I asked what was wrong, he said he was trying to convince them to put the story of the Lehman Brothers bankruptcy, a blow on Wall Street that would trigger a collapse of the financial markets, on page one. “Jane wanted to know what it had to do with Chicago,” Kirk explained. That day’s paper led with a story about the Chicago Cubs.

  By now, I had received a fellowship at the Joan Shorenstein Center on the Press, Politics and Public Policy at Harvard Kennedy School and was preparing to leave Chicago for Boston. Every day, the Chicago Tribune would land on my doorstep with an increasingly irrelevant front page. One day I picked it up and, in the same space on page one where Tribune reporters had published stories that transformed the global debate over the equity of the death penalty, I found a huge spread promoting a quest for the best cheeseburger in Chicago. Many great journalists and good friends remained at the Chicago Tribune laboring under rotten conditions. But as a reader, I simply could no longer pay them good money to endorse what they gave me in the paper. I canceled my subscription.

  In December 2008, the Tribune Company filed for bankruptcy, claiming debts of $13 billion and assets of $7.6 billion. By then, the new owners had laid off more than 4,000 employees of Tribune Company, including hundreds of journalists. In Los Angeles, just one year after I’d left, the newsroom was down by nearly 50 percent. The Chicago Tribune didn’t escape the carnage, although the cuts were not as bad there since it wasn’t as big as the Los Angeles Times. It had cut its newsroom and narrowed the space devoted to news to generate a positive cash flow only because it didn’t have to pay its debts. Readership fell, too. Until the company filed for bankruptcy, Zell believed he would make a lot of money in the deal. By then, though, he had taken to calling his acquisition of Tribune, “The Deal From Hell.” Zell had lost more money during his career as a maverick investor than he did in Tribune. But his reputation had taken a hit. In January 2009, I left Chicago and drove through snowstorms for Cambridge, M
assachusetts, leaving “The Deal From Hell” and my life as a newspaperman on the shores of Lake Michigan. Or so I thought.

  Epilogue

  I loved my time at the Joan Shorenstein Center on the Press, Politics and Public Policy. When I arrived in Cambridge, snow covered the Harvard campus. Barack Obama had just been inaugurated president of the United States. I walked to a local cycling store, bought a bike for transportation, and started my fellowship—a marvelous program that provided me with an office, a research assistant, a stipend, and Harvard’s vast resources. The other fellows at the Shorenstein Center were Maralee Schwartz, a former editor at the Washington Post; Michael Traugott, a professor of communications from the University of Michigan; and Mitchell Stephens, a journalistic historian from New York University.

  Shorenstein fellows spend a semester at Harvard writing a paper, speech, or contribution to a book about journalism. The luxury of the fellowship is ample time to think. Just as I started researching this book, I was asked to speak briefly at a lunch hosted by the Nieman fellows, a group of mid-career journalists who come to Harvard for a full academic year to expand their horizons. When the Nieman fellows stood up at the lunch to introduce themselves, it dawned on me how fortunate I’d been in my career. All of the Nieman fellows were exceptionally talented and accomplished people, like Kael Alford, an intrepid journalist who had risked her life in Iraq to take her gripping photographs. As they discussed their projects and what was next on their horizons, many of the Nieman fellows expressed fears about the future of journalism. They hoped, they told me, they would have a job or newspaper to return to when the fellowship ended.

  The Nieman fellows’ fears were real. By early 2009, hardly a day passed without a news headline about major media layoffs. As the economy slumped and the Internet devoured its ad revenues, even the New York Times, which had to that point resisted cutbacks, started buyouts and outright newsroom layoffs. Newspaper readership was in free fall as the recession deepened and managers continued to prune the junk circulation from their books. Retailers and customers watching declining circulation began questioning the true value of newspaper advertising. By relying too heavily on cost cuts to compensate for financial problems, the news industry had created an ongoing cycle of decline.

  It began with the production process. You need printing plants, paper, ink, trucks, and gas to produce a paper and deliver it to a reader’s doorstep in the morning. Those expenses—ones that are relatively fixed and hard to manipulate down if you want to stay in business—can account for 65 percent to 75 percent or more of the costs of producing a newspaper. By January 2009, newspaper managers faced an equally unbalanced revenue structure. Over time, publishers had, for a variety of reasons (including fear of losing readers), resisted raising the price of a daily newspaper. In effect, publishers conditioned Americans to get their news for far below the cost of production. Readers paid little for newspapers and they wanted it to stay that way. The economics were quite democratic; publishers delivered the news to everyone usually for less than a dollar. The media subsidized the cost of delivering the news with revenue from advertising purchased by businesses that wanted to put their commercial message in front of readers or viewers. At many big-city newspapers, advertising accounted for about 80 percent of the revenues. In their salad days, newspapers had a monopoly because no one else had access to their customers, and they could charge what they wanted for advertising. There were not many ways for companies to determine how many readers actually read their ads.

  But the Internet had upended the media’s traditional business model at newspapers and broadcast outlets. Suddenly, advertisers could appeal to potential customers much more cheaply by running commercial messages on their own websites, over e-mail, or through companies like Google. The rapidly growing Internet juggernaut based in Cupertino, California, attracted huge audiences by lifting newspaper and broadcast content for free off the Internet, telling advertisers they didn’t have to pay for the low-cost ads adjacent to the content unless someone actually clicked on the message or bought something. Unlike news that relied on an intricate delivery system, Google delivered its information digitally, eliminating the expenses of a printing plant and truck. In effect, for every dollar advertisers paid a newspaper to run an ad, they could now get the same message on the Internet for a dime. And Google was collecting most of the dimes. Newspaper executives complained bitterly about Google, but there wasn’t much they could do about the company.

  Unless newspaper executives could find a solution, the decline would continue. Newspapers could cut their fixed costs only so much if they still wanted to deliver the newspaper to readers. Just as ad revenues began to plummet—partially because of the recession and partially because of the Googles of the world—newspapers balked at the kind of steep price increases needed to thrust their product onto stable financial footing, fearing a backlash of resistance from customers. Even worse, a new generation of younger readers accustomed to getting their news for free on the Internet didn’t read newspapers. Traditional media companies tried to fight back by beefing up newspaper websites. But the websites had been starved by the industry’s astonishing lack of research and development spending. Even if they were successful in improving their web presence, the monies papers got for advertising were far lower than they’d once been and the competition was much stronger. So, to lower costs, newspapers targeted their most valuable asset—the one thing that distinguished them from the others but also something they had devalued by pricing it so low: their journalism. Cuts to the heart of the industry created the kind of gloom-and-doom headlines that simply perpetuated the cycle of decline.

  At the Los Angeles Times, Zell, Michaels, and their team imposed harsh newsroom cutbacks. They slashed the amount of space devoted to news and eliminated at least three hundred newsroom jobs, taking the staff down to fewer than six hundred journalists. One of those to go was Leo Wolinsky, who was let go in October 2008. Times editors masked some of the cuts with a relatively smart redesign of the paper and continued to invest what resources they could in their website. Thanks to the temporary respite of bankruptcy court, the Times no longer had to cough up much of the cash Tribune needed to repay the crushing debt Zell had piled onto the company. But the markets served by the Los Angeles Times had been hit particularly hard by the subprime mortgage mess, and ad revenues plunged.

  In Chicago, Zell had turned his attention and his remaining billions to his other far-flung investments, admitting that his foray into newspapers had been a mistake. Not only was he out the $315 million he had invested in “The Deal From Hell,” his reputation as a man with the Midas touch was in tatters as the company slogged through bankruptcy court. The company’s creditors couldn’t agree on a plan to reorganize Tribune—a necessary step for the business to emerge from bankruptcy and begin to repay its bank loans. Zell placed Tribune Company and the Chicago Tribune in the hands of Michaels, who implemented the steps he first laid out in his hundred-day plan for Tribune.

  With Kern at the helm, Abrams was given access to the newsroom, which elevated his status in the newsroom and the industry. The paper cut its staff and the space allotted to news, while Abrams engineered a redesign of the paper at Michaels’ behest. Kern closed the paper’s foreign and national news bureaus and replaced them with his brand of cookie-cutter coverage that was centered in Chicago. Heavily promoted stories about fake food, taxi strikes, or American Girl’s new digs replaced serious front-page national and foreign news at the Chicago Tribune. In line with Abrams and Michaels’ formula for market-driven news, sports stories about the White Sox or the Chicago Cubs also got prominent play on page one. Before long, the Chicago Tribune began to resemble a splashy tabloid. The paper still contained serious news, but it was usually relegated to stripped-down wire reports on inside pages. Luckily for the Los Angeles Times, all Tribune papers started relying on the Times’ national and foreign staffs for global coverage.

  When one Tribune editor pitched a story on the ci
ty’s troubled public housing program for page one, Hirt, Kern’s managing editor, rejected it for not being in the paper’s demographic, an editor at the meeting recounted. Representatives from the newspaper’s marketing department started “helping” editors select news coverage, and a far more repressive atmosphere took root in the newsroom. Kirk, the paper’s associate managing editor for financial news, saw a change soon after Lipinski stepped down when he objected to a company plan that he thought would damage a business columnist’s credibility. Michaels summoned him into his office with Kern in tow, told him that he knew how to deal with “troublemakers,” and warned Kirk “that he hadn’t heard the last” from Michaels. Kirk left the paper soon thereafter.

  Many decent, committed, and talented journalists remain on the staff of the Chicago Tribune, and they continue to pursue great journalism, particularly investigative series on local issues. Michael Oneal also continues the difficult job of covering the company’s bankruptcy with skill and precision. The Tribune launched a crusade against people and politicians who used their political clout to get their kids—or friends’ kids—into the University of Illinois. But the reporters didn’t get the kind of leadership they deserved, and they still don’t. The coverage of the University of Illinois lacked the context a good editor would have demanded to document the true scope of the problem, not just at the University of Illinois but in other states and at other schools. As a reader, I felt the paper’s news judgment became sophomoric, parochial, and superficial. In January 2011, when Chicago’s own President Obama gave a moving speech in Phoenix, Arizona, after congresswoman Gabrielle Giffords had been shot in the head by a disturbed young man, the Chicago Tribune barely mentioned the story on its front page. But at the end of the day, Michaels’ conduct overshadowed the paper’s dubious news judgment.