Good and Dead: Ruthless despoiler of great newspapers dead at 81

The obituary page of The Massachusetts Spy

By Obituary Editor Luke Reschuss

Even in an era where ruthless rapacious financial finaglers run rampant over the shattered ruins of once-great American businesses, he stood out for his ability to commit mayhem on a massive scale.

Sam Zell, 81, closed his final deal last week, as he descended from the ranks of the rich and feared into death and obscurity.  Not a great trade, Sam.

Zell, a Jewish lad from Poland, fled the Holocaust in 1939, leaving Anne Frank behind to her fate.  This was not a great trade either.

The Chicago Tribune, before Sam Zell...

Having learned how harsh and cruel the world could be, he spent his entire career returning the favor, amassing at first a large fortune in the cutthroat (and cutpurse) world of real estate investing, enjoying the insane tax breaks that a nobbled Congress lavishes on real estate speculators, and no one else. 

Having trousered $5 billion for selling his real estate empire to an even bigger bunch of financial finaglers, he looked for new worlds to ravish and came upon what was then at the time America's premier and highly profitable media company, Tribune.

In 2007, the Tribune Company was a media colossus.  Its holdings included great and profitable newspapers like the Chicago Tribune, the Los Angeles Times and Long Island Newsday.   It also owned enormously successful and profitable television stations in Chicago (the nation's third largest TV market), Philadelphia (fourth), and New York (numero uno).  The cherry on top was the Chicago Cubs, the city's beloved baseball franchise which was eventually sold for $800 million.

By the time Sam Zell's financial genius had finished its work, the Tribune Company was a smoking ruin, thousands of jobs had been cut, and great newspapers had been hollowed out into worthless husks, still being plundered for pennies by another generation of rapacious asset-stripping finaglers who picked up the remains from the wreckage of Sam's empire.

He lost the Tribune empire the old-fashioned way: greed and hubris, aided and abetted by Wall Street vultures ready to pocket huge fees (and other revenue streams) by packaging risky securities and palming them off on schmucks, or, as they are known in investment banking, customers.

The deal, like a lot of buildings put up by unscrupulous real estate investors, was unsteady and jerry-built from the start.  At least when you're building physical structures, you have to comply with building codes.  When you're building financial structure, you can engineer anything you want, limited only by your greed and the credulity of investors.  In other words, no limits at all.

So in the pre-2008 heyday of insane debt structures, Zell loaded up Tribune with $13,500,000,000 in debt to buy out shareholders.  He put in his share too: $315 million, or 2.3% of the purchase price. 

Now things get shady.  To get out of paying taxes, he turned Tribune into something called an ESOP, a tax-advantaged structure based on employee ownership.  And indeed the employees pension plan did own the equity.

The only problem: the equity was worthless on day one, and declined in value thereafter.  Sam made his contribution as debt, so he would be made whole before the employees made a penny on their shiny new company.  Or, as The New York Times put it,

But employees, who had no say in the deal, assumed a crushing burden and stood to gain only if the company survived, while Mr. Zell, for a relatively modest investment, became chairman and secured an option to buy 40 percent of the company for $500 million if it prospered....Employees filed a barrage of lawsuits, but they had little effect, and the transaction was widely denounced by media commentators as lopsided — a potentially lucrative coup for Mr. Zell at the expense of thousands of employees, whose jobs, careers, pensions and futures had been mortgaged under a mountain of debt.

Funny how that works. Having engineered this tottering financial structure, Zell, like the Master of the Universe he thought he was, hired an absolutely unqualified schmuck to run it into the ground:

Mr. Zell installed managers who, like him, had no newspaper experience. His chief executive, Randy Michaels, a former radio executive and disc jockey, resigned in the face of allegations that he had sexually harassed staff members and alienated many more with outlandish cronyism .... 

The entire shabby mess collapsed into bankruptcy a year later, and rotted there while Zell, lawyers, and other vultures feasted on the carcass.  The employees' pensions were wiped out, followed by their jobs. As a result, the newsrooms were hollowed out:

The Chicago Tribune lost its foreign and national staffs, slashed deeply into its Washington presence, and began whittling away at its costly veterans back home.

The punch line? After the bankruptcy, the Tribune ended up in the hands of even worse asset strippers who have completed the hatchet job Zell began, to the point where the newspaper has no office in the city of Chicago. The Los Angeles Times, like The Washington Post and The Boston Globe, ended up in the hands of a rich weirdo, who seems to have staunched the bleeding.

So much for Sam Zell the business legend.  You'll no doubt be surprised that he was an even worse person:

...and after he was done with it

A contrarian in business and private life, Mr. Zell eschewed conventions and was notoriously blunt, often barking at employees and using vulgarities in speeches and meetings. When the former Secretary of State Warren M. Christopher and others met him to voice concern over the health of The Los Angeles Times, Mr. Zell said he did not care what they thought, using an expletive for emphasis.

Zell, like other grubba naars, sought to compensate for his rapacious conduct, revolting personality and lack of height by sprinkling a few shekels of his ill-gotten gains on various charities willing to fawn over benefactors like him:

Mr. Zell, who had homes in Chicago, Sun Valley, Idaho and Malibu, Calif., was an active philanthropist, giving millions to the University of Michigan, Northwestern University and the Wharton School of the University of Pennsylvania. He was also a major donor to causes in Israel and to the American Jewish Committee, a Jewish primary school in Chicago named for his father, and other cultural and educational institutions.

That makes it OK, then. 

What makes his story remarkable is its lack of remarkability: almost every tycoon could be described as a miserable dick willing to sacrifice their employees and their enterprises at the altars of their greed and ego.  It's almost like we've built and encouraged a society that values rapacity over anything else.  

Of course, not all of them grow up to be President.

We like to think of Zell in his new abode, pitching to Mephistopheles his plan for a can't-miss leveraged buyout of Hell.   We wouldn't bet against him.  And we wouldn't bet on reading all about it in the shells of the great newspapers he plundered.