In 1978, the Evening News lost $2.9 million pretax—easily Buffett’s biggest hit. Lipsey, who would regularly phone him from Buffalo, was amazed at how upbeat Buffett remained. “He’s put all his money in. He’s got a Sunday section going to zip. He’s got an antitrust action. He’d be encouraging. He’d say thanks for calling.”
Munger was another story. After the contempt citation, Munger called Murray Light in a state of high agitation, with the supposedly big news that Buffett was planning to give a speech someplace. “Talk to Warren,” Munger said excitedly. “You have more influence than I do. Get him to be more careful with some of the things he’s saying.” Munger lived in mortal fear of another toll-bridge comment. Buffett shrugged it off.
But Munger saw that the paper was no longer in control of its destiny. In Blue Chip’s annual letter, he even allowed the possibility that the paper might not make it.
Litigation is notoriously time-consuming, inefficient, costly and unpredictable. The ultimate security of the Buffalo Evening News remains in doubt, as it will for a very extended period.37
In April 1979, two years after Blue Chip’s purchase, the U.S. Court of Appeals in New York reversed the injunction and the contempt citation and strongly rebuked Judge Brieant.
Taking first the issue of intent, we find simply no evidence that Mr. Buffett acquired the News with the idea of putting the Courier out of business as distinguished from providing vigorous competition, including the invasion of what had been the Courier’s exclusive Sunday market.… All that the record supports is a finding that Mr. Buffett intended to do as well as he could with the News and was not lying awake thinking what the effect of its competition on the Courier would be. This is what the antitrust laws aim to promote, not to discourage.38
Legally, Buffett was vindicated. But in practical terms, the suit had served its purpose. Though the Evening News remained by far the dominant paper during the week, the Courier-Express’s lead on Sunday was holding fast at 100,000 papers. And two months after the appellate reversal, the morning paper was sold to the Minneapolis Star & Tribune Co., owned by the Cowles family of Minneapolis. Now the Evening News faced a protracted war against another, also deep-pocketed out-of-town owner. In 1979, the Evening News lost a whopping $4.6 million. For the first time, Buffett and Munger were losing serious money. Munger recalled, “I went through the calculations personally—I figured out exactly how much my share would cost me and exactly how much the Munger family could afford to lose.”
In 1980, Lipsey moved to Buffalo full-time.† Buffett hadn’t asked him to do it, but Lipsey knew that Buffett, in his none too casual way, wanted him there—badly. And Lipsey had gotten hooked on the battle with the Courier-Express.
When Lipsey took charge of the Evening News, the paper faced a new crisis with labor. Prior to Buffett’s purchase, the paper’s thirteen unions had played the company off against itself, resulting in what Munger termed a “leapfrogging of benefits.”39 Determined to break this pattern, Buffett and Munger sent a message, presumably intended for the unions, in the Blue Chip report that appeared early in 1980:
If any extended strike shuts down the Buffalo Evening News, it will probably be forced to cease operations and liquidate.40
The teamsters decided to test them. Late in 1980, the delivery truck drivers demanded new manning requirements and pay for work even if not performed,41 hot-button issues that were really about control. Buffett turned them down. At the eleventh hour, a Monday evening in December, Ray Hill, who represented the Newspaper Guild, the largest union at the paper, was called from a church meeting to come down to the paper and try to help avert a strike. Hill knew Buffett, and sensed that he wasn’t bluffing. He advised the teamsters not to play poker with him. The teamsters’ representative was Martin Brogan, a former bar bouncer and a ringleader in the only previous strike in the paper’s history. Brogan figured that Buffett wouldn’t risk a strike in the midst of the battle with the Courier-Express. Someone called a mediator, who showed up drunk. The talks lasted all night. Finally, the mediator turned to Hill and said, “Look, Ray, they want to strike.” At 6:00 A.M. Tuesday, the teamsters walked.
The Evening News started to put out a paper, with the help of other unions, who crossed the picket line. Then the pickets sacked a delivery truck, and the pressmen stopped work and pulled the page plates.42 The paper shut down, and subscription calls lit up the Courier-Express. The nightmare in Buffalo had hit bottom.
Buffett, according to a close confidant, was sweating. He knew that if the paper shut down for long, it would suffer a ruinous loss of market share.43 He had to reopen it soon or never. On the other hand, if he gave in, twelve other unions would demand the same deal.
Early Tuesday, he announced that if the paper didn’t publish he couldn’t meet a payroll, and ordered the entire staff to leave. What’s more, he said, if the drivers didn’t return for the all-important Sunday edition, he would close the paper for good. Richard Feather, the Evening News’s chief bargainer, hung up the phone feeling certain that Buffett meant it.
Brogan, who was under pressure from the other unions, was sweating, too. Hill told him, “Marty, whatever you’re fighting for, you’re taking everyone over the side.” Finally, Brogan blinked. The teamsters accepted a face-saving concession, and the Evening News was back on the streets by Thursday afternoon.
Hill said, “Warren, when this is over, I want our cooperation recognized.”
“Ray, an empty sack doesn’t stand very tall.”
Hill took this to mean that if the paper recovered from the war with the Courier-Express, his members would be rewarded. But the balance of power had shifted in Buffett’s favor. As Hill said, “Things are never the same after a strike.”
Both papers were hurting badly from the recession, which had hit Buffalo hard. And the war of Sundays dragged on. The Evening News made some gains, but it did not close the gap. After five years, it trailed in circulation, 195,000 to 265,000.44 And it continued to lose money, though at a diminished rate. Since Buffett had bought the paper, pretax losses had amounted to $12 million.45 Early in 1982, Munger concluded that they had dug a hole from which they would never recover.
We would now have about $70 million in value of other assets, earning over $10 million per year, in place of the Buffalo Evening News and its current red ink. No matter what happens in the future in Buffalo we are about 100% sure to have an economic place lower than we would have occupied if we had not made our purchase.46
In the next few months, Sunday circulation crept over 200,000, though it remained far below the Courier-Express. Meanwhile, Buffalo was rife with rumors that one or the other paper would fold. Buffett vehemently denied that he would even consider it.47 But the city could not support two papers. The question, again, was who would blink first. And then, in September, the Courier-Express did; it folded.
The morning paper had been losing $3 million a year, twice as much as the Evening News. Otto Silha, chairman of the Courier’s parent Minneapolis Star & Tribune Co., said the decisive factor was that its flagship Minneapolis paper also was doing badly. In contrast, he knew that Blue Chip could be sustained indefinitely by the increasingly lucrative See’s Candy.
The day the Courier-Express died, the Evening News changed its name to the Buffalo News and started a morning edition. Within six months, Sunday circulation topped 360,000—far surpassing the peak Sunday readership of its rival. Ad rates, reflecting the surviving paper’s higher readership—and its monopoly—surged. The paper became a gold mine, or perhaps even a toll bridge. It was soon clear that Munger had been wrong; the paper would be not merely profitable, but immensely so.
The News earned $19 million, pretax, in its first year without competition. (Those profits belonged to Berkshire Hathaway, which fully absorbed Blue Chip Stamps in a merger.) By the late eighties, the News would earn more than $40 million a year—more than Buffett had invested in Berkshire and Blue Chip combined. His ascent up the investment food chain had a certai
n inexorable momentum: stamps provided the cash for See’s Candy; the profits from candy fueled the Buffalo Evening News, and the News could bankroll an even bigger prize still.
Buffett disabused the employees of any illusions over who would share in that prize. Soon after the Courier’s demise, Buffett attended a meeting for the newspaper’s middle-level managers, in Buffalo’s Statler Hotel. “What about profit-sharing for people in the newsroom?” Buffett was asked. On its face, this seemed reasonable. The newsroom had certainly done its bit.
Buffett replied coldly, “There is nothing anybody on the third floor [the newsroom] can do that affects profits.” The staff was shocked, though Buffett was merely living up to his brutal-but-principled capitalist credo. The owners of the Buffalo Evening News had run very great risks. Employees had not come forward during the dark years to share in the losses. Nor, now, would they share in the gains.
Alvin Greene, a night editor who was present at the meeting, said, “I was just stunned. It sort of sent a message to everyone in the newsroom.”
Employees got a catch-up raise, but not the home run they had hoped for. As Greene said, “The big disappointment was, we won the battle. We got one fairly good raise and then nothing [out of the ordinary].”
In the years after the Courier-Express folded, the pay scale at the News slipped to thirtieth among Guild papers nationwide—down from seventh when Buffett had bought the paper.48 Still, Ray Hill, the Guild unit chairman, judged that Buffett had delivered on what he promised. Had the roles been reversed, Hill said, he would not have behaved much differently.
As the sole survivor in Buffalo, the News faced a problem that had been unthinkable during its war with the Courier. As Buffett noted in an annual letter to Berkshire, a monopoly newspaper has no economic incentive to maintain its quality.
Owners, naturally, would like to believe that their wonderful profitability is achieved only because they unfailingly turn out a wonderful product. That comfortable theory wilts before an uncomfortable fact.… Good or bad [a dominant paper] will prosper.49
Buffett pledged to keep it a good paper anyway, and in a statistical sense he kept his word. The News continued to publish the same number of news columns as advertising, giving it the highest news ratio of any comparable daily in the country.50
Buffett also remained a close friend of Stan Lipsey’s. But he went to the newspaper less often, and reporters stopped hearing that he was reading their stories. Gradually, the staff came to feel a certain disappointment. Buffett was a decent owner, probably no tighter than others. But the reporters had hoped that Buffett would be more—a larger presence if not a more munificent one. And the wartime spirit of the paper was lost.
Lee Coppola, the investigative sleuth who had been so motivated by Buffett, left the paper, went into broadcasting, and eventually became an assistant U.S. prosecutor in Buffalo. He continued to exchange an occasional note with Buffett. His feelings—like those of others who had invested Buffett with expectations not of Buffett’s doing—were mixed. “The dream that I had was not fulfilled,” Coppola said. But, he added, “To this day, I respect the man.”
A decade after its war with the Courier-Express, the News reached three-fourths of the households in Buffalo—the highest such ratio of any metropolitan paper in the country.51 But Buffalo was the poorer for having one newspaper instead of two, and total newspaper readership in the city was much less than when the Courier-Express had been alive.52
Certainly, Buffett had every right, and also every reason, to start a Sunday paper. And given what has occurred in other cities, there was little chance that two papers could have survived even had Buffett not come to town. In effect, he had merely given the Invisible Hand a push. Still, a paper had been buried and jobs had been lost. And in some remove of “the unfathomable human mind,” Buffett must have suspected, even in court, that it would turn out that way. Consider his words to a colleague on the survival prospects of second newspapers:
In years past, hundreds of newspaper owners, putting up their own money, as well, I am sure, as most of the “experts”, felt that large cities would sustain more than one healthy newspaper. It just wasn’t so.53
Buffett wrote that in 1972, five years before the Evening News was even a glimmer in his eye. He had known, all along, that second papers were doomed. In Buffalo, he merely proved it.
On the shores of Lake Erie, memories of the war died hard. Long after the event, veterans of the Courier-Express were bitter about the paper’s demise. Even their children harbored a resentment against Buffett’s paper, but they subscribed to it seven days a week, just as did the children of the victors. As Daniel Mason, Furth’s associate and later his partner, muttered, “At the end of the day, Buffett got his monopoly.”
* At the time, Blue Chip had more free cash than Berkshire did. Blue Chip was already controlled by Berkshire, and it would soon become a majority-controlled subsidiary of it.
† Buffett sold the Sun, the chain of Omaha weeklies of which Lipsey had been publisher. Subsequently, Buffett went on the board of his hometown daily, the Omaha World-Herald.
Chapter 12
PARTNERS, REDUX
As Buffett was jetting off to New York or Washington or Buffalo, he and his wife were leading increasingly separate lives. Susie was getting serious about her singing. Neil Sedaka heard her in Omaha and suggested that she turn professional, and Susie was game to do it.1 Bill Ruane, Warren’s investment manager friend, arranged for her to audition at Manhattan nightclubs, including Tramps and the Ballroom. The Buffetts’ New York friends discovered that she could sing. According to Roxanne Brandt, who was also a singer, “If you had walked in off the street you wouldn’t have said this was a rich guy’s wife.”
Invited back to New York for a return engagement, Susie began to talk about polishing her act and going on extended tour. She even signed up with William Morris, the talent agency.2
In the spring of 1977, as Buffett was purchasing the Buffalo Evening News, Susie was doing another stint at the French Café, in Omaha. On occasion, after the show, the staff would go to the Buffetts’ for a nightcap. Warren would join them for a few minutes and then disappear to his study, leaving Susie to play hostess.3 “I have a picture of Mom and the French Café people coming over,” Peter said. “Dad was like the dad. He was upstairs reading. Mom and her friends were like the kids.”
The Buffetts’ schedules were so divergent that, when they celebrated their silver anniversary, in April 1977, Stan Lipsey had a cartoonist draw a wry card depicting the two of them whirling past each other on the top of a wedding cake.
While they had always had different interests, as the house emptied of children Susie was more aware of a sense of missing something. Kent Bellows, an artist friend who was hanging around the house, thought Warren and Susie had “a great marriage”; they were a case of opposites attracting. Yet so much of the time, Warren seemed to be in a shell—present physically, but not much more. He would be enveloped in a volume of Standard & Poor’s or preoccupied with his thoughts.4 In an emotive sense, he was, indeed, Susie’s opposite. Susie said to Bellows, “All Warren needs to be happy is a book and a sixty-watt bulb.”
Susie, of course, wanted more, much more. She was so giving, so wrapped up in emotional involvements. It was her nature to live for others, which she had done for Warren more than for anyone. Their daughter said, “Mom spent a lot of time supporting Dad so he could do his thing. Dad was so intent, so focused. He just did the same thing all the time.” Peter, more pointedly, said, “Mom suffered for living for other people.” Susie’s time was late at night, when she would stay up alone, listening to music.5
In a rare public interview, when the Omaha World-Herald was writing up her stage career, Susie spoke appreciatively of Warren’s support for her singing. Yet her description of him—the story was published two days shy of their twenty-fifth anniversary—was restrained. Recounting the story of their courtship, she noted that she had been “madly in love wit
h somebody else,” but had followed her father’s advice and discovered that Buffett was “just an extraordinary person.”6 She said nothing about being mad for him. Nor did she mention that she still had wistful memories of her romance with Milton Brown, and that, a quarter century later, she still ruminated aloud, now and then, on what her life would have been like had she married Brown instead of Buffett. (Brown had become a successful food broker in Des Moines.)
By then, the Buffetts were alone. Their daughter was married and working for Century 21, in Irvine, California, near the state university where she had attended college. Howie, meanwhile, had dropped out of Augustana College, in Sioux Falls, South Dakota. He was launching his own business, Buffett Excavating, near Omaha, and had cashed in his Berkshire stock to purchase earthmoving equipment. Young Peter had enrolled at Stanford.
In September 1977, the elder Susie did a one-night performance at the Orpheum, an ornate former vaudeville house in Omaha that had been host in the 1930s to Al Jolson and Barbara Stanwyck. On this particular evening, facing a hometown crowd, Susie was at her slinky, sensuous torch-singer best. She cooed, “Let’s feel like we’re in love, okay?”7
A short time later, forty-five-year-old Susie walked out on her husband. That is, she moved out of the Buffetts’ home on Farnam Street, left Omaha, and rented an apartment in San Francisco. She told her children (Howie was stunned, Peter almost expected it) that she was not “separating,” legally or in other respects, from Warren. But day to day, she wanted to live on her own.
To Buffett, this was an immeasurable blow: stunning, devastating, irreparable. It undid the finely spun cocoon that had sheltered him from whatever was unpleasant, or distracting, and had given him the comfort to pursue his work. It emptied his home of gaiety and warmth, and of Susie’s soul-penetrating closeness. There was no one who could remotely take her place. He told his older sister, “Susie was the sun and the rain in my garden for twenty-five years.”
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