Was Sam Zell Really Going To Sell Out The Chicago Tribune’s Editorial Board for $100 Million In Tax Benefits?

Philip M. Stone December 10, 2008

The Tribune Company has made international headlines two days in a row – it filed for bankruptcy Monday and on Tuesday the federal government arrested the governor of Illinois on a variety of allegations among them that he was pressuring Tribune to fire the Chicago Tribune’s hostile editorial board, especially writer John McCormick, in exchange for a deal worth $100 million in tax savings by the state taking Wrigley Field off Sam Zell’s hands.

And according to the feds, the governor thought that such a deal was in place. But not so as far as Tribune Editor Gerould Kern is concerned. “There was never an instance where I was contacted or called, where any influence at all was placed against me. There were no instances of that." He also said he never received complaints from the governor’s office. "I never got a complaint. I never got any contact whatsoever from Governor Blagojevich, no complaint -- nothing from inside Tribune Co." And he noted there were no changes on the Tribune’s editorial board, a point supported by editorial page editor Bruce Dold. "This whole thing comes as a complete surprise to me today," said Dold. "Sam Zell said when he took over the company that he didn't want to interfere with editorial decisions. He has been absolutely good to that."

Here’s the way the feds explained the alleged goings-on in their news release: “According to the affidavit, intercepted phone calls revealed that the Tribune Company, which owns the Chicago Tribune and the Chicago Cubs, has explored the possibility of obtaining assistance from the Illinois Finance Authority (IFA) relating to the Tribune Company’s efforts to sell the Cubs and the financing or sale of Wrigley Field. In a November 6 phone call, (the governor’s chief of staff John) Harris explained to (Governor Rod) Blagojevich that the deal the Tribune Company was trying to get through the IFA was basically a tax mitigation scheme in which the IFA would own title to Wrigley Field and the Tribune would not have to pay capital gains tax, which Harris estimated would save the company approximately $100 million.

“Intercepted calls allegedly show that Blagojevich directed Harris to inform Tribune Owner (Zell) and an associate, identified as Tribune Financial Advisor, that state financial assistance would be withheld unless members of the Chicago Tribune’s editorial board were fired, primarily because Blagojevich viewed them as driving discussion of his possible impeachment. In a November 4 phone call, Blagojevich allegedly told Harris that he should say to Tribune Financial Advisor, Cubs Chairman and Tribune Owner, ‘our recommendation is fire all those [expletive] people, get em the [expletive] out of there and get us some editorial support.’

“On November 6, the day of a Tribune editorial critical of Blagojevich, Harris told Blagojevich that he told Tribune Financial Advisor the previous day that ‘things look like they could move ahead fine but, you know, there is a risk that all of this is going to get derailed by your own editorial page.’ Harris also told Blagojevich that he was meeting with Tribune Financial Advisor on November 10.

“In a November 11 intercepted call, Harris allegedly told Blagojevich that Tribune Financial Advisor talked to Tribune Owner and Tribune Owner got the message and is very sensitive to the issue. Harris told Blagojevich that according to Tribune Financial Advisor, ‘there would be certain corporate reorganizations and budget cuts coming and, reading between the lines, he’s going after that section.’ Blagojevich allegedly responded, ‘Oh. That’s fantastic.’ After further discussion, Blagojevich said, ‘Wow. Okay, keep our fingers crossed. You’re the man. Good job, John.’

“In a further conversation on November 21, Harris told Blagojevich that he had singled out to Tribune Financial Advisor the Tribune’s deputy editorial page editor, John McCormick, as somebody who was the most biased and unfair. After hearing that Tribune Financial Advisor had assured Harris that the Tribune would be making changes affecting the editorial board, Blagojevich allegedly had a series of conversations with Chicago Cubs representatives regarding efforts to provide state financing for Wrigley Field. On November 30, Blagojevich spoke with the president of a Chicago-area sports consulting firm, who indicated that he was working with the Cubs on matters involving Wrigley Field. Blagojevich and Sports Consultant discussed the importance of getting the IFA transaction approved at the agency’s December or January meeting because Blagojevich was contemplating leaving office in early January and his IFA appointees would still be in place to approve the deal, the charges allege.”

All of this, of course, is allegation but if there is any truth to it then the natural question that should be put to newspaper publishers everywhere is whether sacrificing a newspaper’s editorial board is worth $100 million? We know the journalistically ethical right answer, but in this case when the newspaper was approaching possible bankruptcy does “business is business” win over, or are we idealists until the end? Would the answer be any different if the owner/publisher was someone brought up in the world of being a newspaper executive as opposed to Sam Zell to whom newspapers are a new business?

In what now seems a masterstroke of timing for it gives some perfect background to the governor’s thoughts about the Tribune’s editorial board, the night before his arrest he spoke out on the subject while on a visit to the CNN Chicago studio. While expressing sympathy for Tribune employees who might be financially hurt from Tribune’s bankruptcy he added, “I don’t have a lot of sympathy for the editorial board and some of those guys up at the top who like to pontificate about the people who are (trying) to get things done for people.”

“I’m confident that an astute businessman like Sam Zell is going to turn this around. And (I) offer a polite recommendation to him. One thing he might want to do is change that editorial policy and change that editorial board and put some people in there that actually care about the average ordinary working person,” the governor said.  But there have been no changes, and the one guy the governor particularly wanted gone, John McCormick, is still there.  So is Sam Zell a good guy and was ready to blow away $100 million in tax advantages, or did the feds strike before Zell was ready to act himself? Enquiring minds want to know, but as we pass our deadline Zell isn’t saying.

As for those who may be hurt by the bankruptcy, in Tuesday’s article we noted that at the end of the day Zell will still be a billionaire but current staffers will have lost their one year investment in the Employee Stock Option Plan (ESOP) and the debt holders could be left holding basically worthless paper. But Tribune should emerge much stronger financially from bankruptcy than it is now because much of the financial rope strangling its neck will be gone.

But share a thought for one other group we didn’t mention – former employees.  Tribune says it is stopping all severance payments, deferred compensation and other payments to former employees, and they will be required to file a claim with the bankruptcy court like any other creditor. Now that is really hard considering how many people Zell’s people have fired in the past year and who may be taking monthly severance compensation.

A former UPI executive once told this  writer how he took a $20,000 lump sum payment from the company instead of what would have been a much larger figure but paid monthly over 24 months because he doubted the company would avoid bankruptcy that long. And he was right. So the lesson to the wise is that if working for a company that one thinks could soon be visiting bankruptcy court, the bird in the hand (the one-time payment) is worth two in the bush (larger monthly payments that could be lost because of bankruptcy.)

But there is a group of former employees for whom there will be little sympathy – former Times Mirror executives who are owed millions of dollars in either deferred compensation or retirement after Tribune bought the company in 2000. Mark Willes, the last CEO of Times-Mirror, is owed $11.2 million, Robert Erburu, Times-Mirror CEO from 1992 – 1995, is owed $4.4 million, a former Newsday publisher is owed $2.8 million and a former executive vice president  is owed $2.7 million. Doubtful when the dust clears they will see much if any of that.