Man buys newspaper

Real estate tycoon Sam Zell doesn't like journalists very much, but he believes he knows how to make newspapers profitable again.

In February 2007, billionaire real estate entrepreneur Sam Zell pulled off the deal of a lifetime. Equity Office Properties Trust, the real estate empire he headed, was bought by private equity group Blackstone Group for $39 billion in cash (or $28 billion excluding its debt). Equity owned more office rental space than any other entity. This was before the world had heard of the sub-prime crisis, and before the real estate bubble burst. In short, it was a different era, on a different planet.

A year and a half later, in a symposium with business administration lecturers and students at the Wharton School of Business, Zell admitted, "I couldn't repeat the Blackstone deal today." One may assume that Blackstone couldn't, or wouldn't ,repeat it either.

The deal was completed just before US Independence Day. Zell, the son of a Jewish refugee from Poland who escaped by the skin of his teeth ("12 hours before the Nazi invasion"), never loved America more than he did that summer. He published a triumphant announcement on his website, with a parody on a Burt Bacharach song. Titling his post "The theory of relativity", Zell posted a photograph of a sculpture of a man holding an umbrella and coins raining down on him from the sky. To the tune "Raindrops keep fallin' on my head" Zell wrote "Capital keeps fallin' on my head, Everything is liquid, we’re awash with cash to spend - The flood has drowned returns, cause assets keep liquefying, monetizing, raining…" He pocketed $900 million and asked himself, what next? What could be a more natural answer for an aging real estate tycoon than "let's buy the biggest media group in America"?

The Tribune may have been born in Chicago, and given it one of its most renowned architectural attractions, but over the years it spread across the US, acquiring newspapers, and radio and television stations, from Southern California to Pennsylvania, and from New York to South Florida.

What made him do it? One might have thought that he simply loves newspapers, a predeliction that would not be unreasonable for someone who was born in 1941 and reached adulthood in a country where television was still black and white. But no, Zell does not like newspapers. He takes a pretty dim view of newspapers, and journalists. ("You're a f----- leftwing journalist," he told me. "I'm not a leftist," I defended myself almost in a whisper. "I'm giving you shit," he replied, trying to placate me. I think that "f---- journalist" is simply Zell's instinctive description for almost any reporter he comes across).

So what he is doing in the media? He is a businessman, and newspapers are simply a business. They were at a low point so pitiful, dreadful, and desperate, that Zell made up his mind to try to breathe life into their dry bones. That, as it happens, is just what he has been doing for years - buying assets that were on the verge of collapse, in atrocious market conditions. He elevated contrarianism to an art. He bought properties when everyone said the market was inundated; he borrowed when they said interest rates would go up; he took unreasonable risks during the days of high inflation at the end of the 1970s. He earned the nickname the "graveyard dancer." Zell is attracted to corporate corpses, to the stench of their maggoty flesh.

He doesn't like newspapers, but he does like money. And, amazingly, he thinks there's money in newspapers, or at least that there will be one day, once he, Sam Zell, has put the industry to rights and taught newspapers to behave like rational businesses, rather than monopolies. "Think about it," he says. "This industry has been plowing along the last ten or twelve years, while the world dramatically changed." He pauses for a moment and then reiterates, "Dramatically changed. And they have not changed at all, other than cutting people. Circulation had gone down and they just cut people. They didn't change anything, they just cut people or reinvested in some other business. What I'm saying to you is there is a size, there is a scale under which a newspaper can be a viable business. And I believe that, and what I'm trying to do is re-mold these newspapers into a viable matrix that can go forward and then we can say we created a stabilized based, and now let's make it better."

What made the Tribune, a public company with a reputation, agree to be bought by Zell? Not only did he have no experience at all in the media, but he only paid $350 million in cash ("Only!", Zell notes, sneering at his critics), to privatize a company with assets estimated at $8.5 billion. He thus saddled it with enormous debts, recently estimated at $13 billion, with an annual payment of around $1 billion. He created a convoluted "employee stock ownership" structure at the Tribune that generated little excitement amongst the employees and owners, but instead raised fears that Zell intended to use his employees' pension savings to finance the acquisition.

One has to admit that there wasn't exactly a queue outside the Tribune offices. But there was, nevertheless, at least one offer better than Zell's, and there were also offers to buy parts. But the Tribune management was unwilling to break up the group, and it therefore sold to Zell. In the end, or maybe it was just the beginning, Zell rushed to offload one of the group's leading titles, the Long Island-based Newsday. He sold it to a major cable television provider with no experience at all in the media industry. The proceeds from the sale were equal to the interest the Tribune pays on its debts over two quarters.

At the time, rumors were rife about Zell's "hidden agenda." Could it be that all he was really interested in were the Tribune's real estate assets? Its gothic tower on Chicago's Michigan Avenue? The historic Times building opposite City Hall in downtown Los Angeles? But even if he did sell them, Zell wouldn't have got more than $380 million, (according to sources in the real estate press).

"I'm not the editor"

One can be fond of Zell, and many people are. He is not condescending even when he is offensive. He does, however, believe that money gives him the right to assume he's right - "Do you know how often people have said to me 'you're wrong Sam,' 'you don't understand Sam,' and look where I am and where they are," - although he has none of the mannerisms of an all-powerful media tycoon. He most certainly cannot be accused of snobbery of any kind.

He stresses how far he is from any hint of elitism, for example, when I ask him why he doesn't sell his newspapers to people who are willing to bear their losses, "because they believe in newspapers." Hollywood billionaire David Geffen was willing to do so for the Los Angeles Times; real estate tycoon Mort Zuckerman is doing it for the New York Daily News; Rupert Murdoch did it for years for the chronic loss-making daily the New York Post; former Gannet chairman Al Newhart lost a fortune for years on USA Today. So why doesn't Zell leave ownership of the newspapers to newspaper lovers?

He is ready for that question. He is even eager for that question. Had there been any element of chivalry in him, he would have bent down to pick up the gauntlet before he drew his sword. In the absence of a round table, he makes do with sarcasm instead. Sarcasm drips from him as he quietly answers (he never gets close to raising his voice). "Ah, I see, so from your perspective, I got to sell, say, the LA Times to someone who has a vested interest in subsidizing it, and controlling its editorial policy."

Globes: It's a good point.

Zell:"That's a lot more than a 'point'." Now we are really down to the core. "Does the paper become the venue of the elitists? I'm a multi-billionaire, OK? Why shouldn't I call up the news desk and tell them 'I don't like your supporting Obama', or 'I don't like your supporting McCain.'"

How do you resist the temptation?

"Completely. The moment I do that, the game will change."

Perhaps you haven't been in control long enough. Perhaps, one day, you will feel more motivated to take a stand.

"I don't think so. And this has a lot to do with who I am, and where I prefer to use my influence."

You once said, however, that at times when holding the New York Times and closing your eyes, you had the sense you couldn't tell a news article from an editorial piece. You were asked what you would do about it if it was a paper you owned - you said you'd scream. You wouldn't force anyone's hand - but you'd scream.

"I'd scream on the principle, not the content. I don't handle content, that's not my issue. But in the same manner what have I said is that while not being interested in editorial policy, I have a great interest in relevance and truth. And so in fact I would be very upset if my newspapers were printing half-truths."

Zell says that nothing could be further from him than "the idea that one individual who happens to be rich, who happens to own a newspaper, therefore says 'do this, or do that' - that's not who I am, and that's not what I want to be."

Do I understand you correctly? It seems implicitly, that you are criticizing the structure of a lot of newspapers in the US. That's how the New York Times and the Washington Post are managed. At both newspapers, the publisher is the one who sets out editorial policy; the editor (executive, as they call them) doesn't even have a foothold in the opinion pages. But you don't think it's a good thing for a publisher to have so much influence over opinions.

"Far be it for me to be judgmental about anyone else - and I'm not."

So just talk to me about the phenomenon, rather than individual cases.

"The issue that you put before me was, why don't I sell the newspapers to people who want to subsidize them in return for the right to impose their opinion? That's what you asked me.

"What I'm really saying to you is really very simple: You can either run it as a business, and hopefully you have an environment that will be totally open to ideas and trends, or you can run it as the voice of an individual."

Which is how newspapers in America were created in the first place and how they have been run for decades.

"That is correct, and look what a great success they have had."

But they used to be very successful in their heyday.

"When they were monopolies, of course."

New York used to have five daily newspapers, and despite this, the "New York Times" was a class above them all.

"There was no Internet then, no television, radio had only just started. So the papers were the primary source of information. And that isn't the case any more."

Would you rather dilute the opinion aspect of newspapers? I understand that you don't want to force anyone, that you don't want to get involved in content-making, but if you were asked, would you advise them to tone it down, reduce the emphasis on viewpoints, not just in the news section but in generally speaking?

"I think there's a very positive role for opinions. Op-eds from outside contributors, editorial articles from the editorial team. If done right, it creates an environment of a two-page spread of multiple opinions."

Although he bears the title Tribune Group CEO, Zell has not turned his back on the world where he made it big - real estate. Is he hemorrhaging blood, like the real estate sector in general? Quite the contrary. "I'm not in the single family residential business, and I never have been," he replies. "If you're talking about the commercial real estate business, to the extent I'm in it, I'm a happy camper; we are the largest owners of apartments in the US, our occupancy is 96%, cash flow is terrific, the world is wonderful. We're doing a lot of real estate internationally, we have had very good success, and we're very happy campers." Nice to hear this kind of nirvana outside Buddhist temples. But perhaps we should point out that it was said before the financial drama of mid-September. His euphoria has dissipated to a large extent since then.

Zell went into real estate business in far-off countries. Brazil and the United Arab Emirates are his chief interest, or very nearly. Our conversation was interrupted just twice, by two phone calls from Brazil. Zell invested tens of millions of dollars in Brazil last year, in partnership with the largest shopping mall chain there. He believes passionately in Brazil, and has been heard to say that its economy will be even larger than that of China. He set up a meeting with his two Brazilian callers in Abu Dhabi - a reasonable spot halfway from Chicago to the moon. The financial press in Brazil recently reported that Zell was bringing money with him from the Persian Gulf to the Brazilian property market. One financial commentator in Latin America wrote of Zell's entry to Brazil, "He's like Bill Gates. He is such an authority on real estate, that everyone will follow him."

Investment in Israel? Not really. I remind him that he once bought 5% of the investment house Tamir Fishman. He smiles politely and says it’s “not significant.” He has, however, invested in the business administration program of the Herzilya Interdisciplinary Center. With his generous funding, the center takes 25 young students every year, and sends them out into the real world to experience the behavior of the free market for themselves: how to set up a company, how to finance it and manage it. “A tremendous success,” he says.

He has much more interest in the Middle East than he did in the past. The UAE is a case in point. He maintains regular contact with the Crown Prince of Abu Dhabi. Just recently, he flew from there to Irbil, the capital of the Kurdish autonomous region in northern Iraq “to stir things up a bit.” He was most impressed with the conditions there, and came away with a sense of confidence that Northern Iraq, and “Iraq in general” has a promising future ahead of it, “and that is very good for Israel.” He also invested in the Egyptian gas pipeline, which will heat a good many homes in Israel.

He has no plans to invest in Israeli real estate, although, “first and foremost I am a Jew. I have innate allegiance to the State of Israel.” He knows of the investments that Sheldon Adelson and Ron Lauder have made in changing Israeli public opinion, the former through a newspaper and the latter through a research institute. But he is practically nonchalant in his response. “I think that the only thing you can be sure of is that five million Jews have five million opinions, and so investing money in influencing them is unlikely to have positive results.” Has he ever toyed with the idea of being involved in life in Israel beyond business proposals? The answer is an emphatic “no”.

I cannot resist the temptation to pose a somewhat tribal question. Before the interview, I tell him, I walked down to the Tribune tower and stood outside, and I tilted my head up as far as I could to measure just how far it extended into the skyline. And a sense of excitement ran through me.

This was the temple of journalism, a hall of history. But historically, it was also the newspaper which was identified, more than any other, with the repugnance that the Protestant Christian elite evinced towards Jews in the US. Jews never used to read the Tribune, and they obviously didn’t write for it either. Its legendary editor, Robert McCormick (“The Colonel”), the man who gave it its character and its status, was anti many things: he opposed Franklin Roosevelt and the New Deal; he opposed the US’s entry into World War Two (he was one of the founders of “America First”, an organization some of whose leaders accused the Jews of pushing the US into the war), and he opposed the establishment of the United Nations. A columnist in a local Jewish newspaper in Chicago wrote that the Tribune had a “thick borscht ceiling” (as in the “glass ceiling” preventing the emancipation of women), that blocked Jews from progressing there.

How does it feel to be the owner of Colonel McCormick’s newspaper?

“Pretty funny isn’t it?”

I wonder what he, having died in 1955, would have thought of a Jewish real estate magnate from Chicago's West Side owning his precious gem.

“I would think he would be turning in his grave, over and over and over. But I'm going to make him proud.”

The paper which symbolized, perhaps more than any other, the aversion to Jews in the US.

“Yes. Amazing isn’t it?”

Were there any undertones of anti-Semitism, or at least unease, when you bought it?

“None.”

This country has come a long way hasn’t it?

“Yes, it's true.”

Can you recall a time when being Jewish was an obstacle?

“You mean in business?”

In business.

“Never. I was born almost right after my parents arrived here, in 1941, and I never accepted being Jewish as a liability. In order to be a victim of anti-Semitism, I think you need to have a certain amount of receptiveness to it.”

But what if you’re having doors slammed in your face?

“I’m pretty good at walking through doors.”

From Poland to the US, via Japan

The name Zell is, of course, an abbreviation of a name from the old world. Zielonka. His parents and sister left Poland on August 31, 1939, with German tanks already revving up their engines, in the run-up to the invasion. Zell wears a diamond-embedded gold bracelet on his wrist. “You see this diamond,” he says, “my mother hid it in one of the shoes of my three-year old sister. She also sewed gold coins into her clothes.” And so they wandered for 21 months, from the German border to Lithuania, and from Lithuania, thanks to the Japanese consul there, one of the righteous gentiles, to Yokohama, Japan, via Moscow, Siberia and the Far East. His mother fell pregnant there in early 1941. In May 1941 his parents arrived in the US, and two months later Sam was born.

The brief stopover in Yokohama does not appear in his biography. He is American-born, but in many senses he has lived the life of a Jewish immigrant from Poland. He once told another interviewer that his parents’ desperate and daring flight had taught him two things. One, that there are a lot of “bad places” in the world; and two, that he appreciates America, probably more than a great many other people do.

And he keeps on wandering.

Sam Zell will be a keynote speaker at this year's Israel Business Conference

Published by Globes [online], Israel business news - www.globes-online.com - on November 19, 2008

© Copyright of Globes Publisher Itonut (1983) Ltd. 2008

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