The Deal from Hell

by James O'Shea

  As the Chicago Tribune copy boy steered our car through Washington Park en route to Midway Airport on Chicago’s South Side, Lipinski took a call on her cellphone from publisher Scott Smith, who was also traveling to Turkey. When she hung up she reported that we’d been delayed—FitzSimons didn’t have his passport. I assumed that he’d simply neglected to pack it. I was wrong. FitzSimons didn’t know he needed to carry his passport with him. Tim McNulty, the Tribune’s foreign editor, had dutifully gotten FitzSimons a visa from the Turkish Consulate. FitzSimons had assumed that McNulty had taken care of everything and that he didn’t have to carry a passport with him. “You guys are the world travelers,” FitzSimons said sheepishly after we’d all arrived at the Signature Air offices at Midway. “I’m just a guy who goes to New York.”

  As we crossed the Atlantic, FitzSimons started talking about the war in Iraq, a subject of particular interest to me. I had decided to travel to Iraq after our foreign conference to learn firsthand about the dangers our correspondents faced covering the war, then in its early stages. As an editor who often put correspondents in harm’s way, I believed that I should willingly go anywhere that I would send a reporter. I had traveled to many dicey places with Tribune correspondents, but this was a special case.

  FitzSimons started to relax on the plane, chatting amiably with Lipinski, Smith, and me. When I told him I would be going to Iraq after Istanbul, he began questioning the thoroughness of the overall coverage of the conflict, using the same logic and language as Bush administration critics. I was ill at ease—especially with the knowledge that Donald Rumsfeld, then U.S. Secretary of Defense, had been a Tribune board member. By then I had heard most of the arguments: The media focused too heavily on the negative elements of the Iraq war and not on the positive actions of the American military (hospital-, school-, and road-building initiatives).

  As editors, we deferred to reporters on the ground who were closest to the action to suggest stories, particularly in war zones. FitzSimons acted surprised that I would let a reporter decide what to cover. That wasn’t the way things were done in broadcasting, where reporters received more direction from their bosses.

  FitzSimons allayed my fears about any direct influence from Rumsfeld when he told me he based his opinions about the Iraq War coverage on discussions he had had with a journalist friend with firsthand experience of the war, who had told him that most news coverage of the conflict exaggerated the violence and gave a misleading portrayal of the U.S. efforts. The friend in question? Geraldo. I was stunned. Geraldo Rivera, then a Fox News reporter, had recently come under criticism in the press for his Afghanistan war coverage when he told his viewers that he had recited the Lord’s Prayer over “hallowed ground” where “friendly fire took so many of our men and the mujahedeen.” Rivera later acknowledged that he had never visited the site where the U.S. servicemen or mujahedeen had died, the “hallowed ground.” I dropped the subject with FitzSimons.

  Once we checked into our hotel in Istanbul, FitzSimons seemed to be enjoying himself. He shared a glass or two of wine with the correspondents and gave them an impressive briefing on the company’s business prospects with a meticulously prepared PowerPoint presentation that left no one in doubt about his message: The Tribune Company would have to grow or be devoured by the giants of the media business.

  Madigan had always encouraged us to use his rank and status to help line up interviews with powerful foreign leaders. Capitalizing on FitzSimons’ presence, we had scheduled an interview with the recently elected Turkish Prime Minister Recep Tayyip Erdoğan, a charismatic former Istanbul mayor and moderate Islamic leader who had once been jailed by the Turkish military for reading a poem. The interview had been set for Friday, after the conference was scheduled to end. When FitzSimons was informed of the meeting, he told me he could not possibly attend. He had to be back in the United States by Thursday. He expressed his regrets and told me he wasn’t “like John in these things.” I didn’t ask what was important enough to stiff the prime minister of one of the few moderate Islamic countries that supported America at a time of war in the Middle East.

  Later, the staff heard that one of the reasons FitzSimons had wanted to get back to the United States was to attend a baseball game between the Cincinnati Reds and the Chicago Cubs. When Erdoğan learned the Tribune CEO wouldn’t attend the interview, he canceled. Cincinnati beat the Cubs nine to seven.

  12

  Buy the Numbers

  In September 2000, just nine months after FitzSimons had been named Madigan’s heir apparent, a letter from a street-smart lawyer landed at the home of Harold Foley, a computer programmer who had done some work for Newsday, the Long Island version of the tabloid newspaper that had thrived even though Willes had closed its sister paper in New York City.

  “We are the attorneys for clients who have authorized us to investigate the possibility of commencing a Federal [racketeering] class action against Newsday, Inc., and Hoy LLC, growing out of a possible fraudulent inflation of Newsday and Hoy circulation records,” read the letter. “At this stage of our inquiry we are concentrating on a computer program labeled ‘Program—ID FUDGE ABC,’ which we believe was designed by you.”

  At first, the letter generated little reaction, other than a threatening response from Randy M. Mastro, a lawyer for Newsday and Hoy, its Spanish language offshoot. Mastro, a New York lawyer from Gibson, Dunn & Crutcher, the same firm that has represented the Chandler family in Los Angeles, demanded that the author “cease and desist” making false statements about his clients and threatened him with repercussions.

  Just six months before, Tribune had acquired Long Island–based Newsday as part of its merger with Times Mirror. Although the letter to Foley had arrived after the deal had closed, the allegations, if true, suggested that the Tribune Company had acquired some pretty serious circulation problems when it brought Newsday into its family of newspapers. But the company’s accelerated due diligence hadn’t detected anything was amiss at Newsday, which bragged about its consistent circulation gains despite trends to the contrary at almost every other paper in America measured by the Audit Bureau of Circulations, or ABC (the industry’s auditing arm that verifies the circulation totals, the numbers newspapers use to set advertising rates, their major source of revenue).

  Everyone at Newsday figured the problem outlined in the letter to Foley written by Joseph O. Giaimo, a dapper Queens lawyer, would just go away. But the problems didn’t go away and neither did Giaimo. “You don’t threaten me,” Giaimo later told me, pumping his thumb toward his chest, “You don’t threaten Joe Giaimo. I’m a street guy. You fuck around with Joe O. Giaimo. Bad idea. I’m a street guy.”

  Circulation departments have never been the choirboys of the newspaper industry. The Colonel’s Tribune had hired the likes of Moe and Max Annenberg to bust heads, trash competitors’ newsstands and even “toss a goon” down a Tribune elevator shaft in the rough-and-tumble circulation wars of the early twentieth century. When Brumback took on the unions at the Tribune-owned New York Daily News some eight decades later, union drivers torched kiosks, beat up replacement workers, and engaged in thuggery that prompted Tribune to pay someone $60 million to take the paper off its hands. The corrupt practices that would be unearthed at Newsday paled in comparison with the good old days, but news of the fake circulation on Long Island would reverberate through newspaper executive suites across America nonetheless.

  Although the Newsday scandal first surfaced after Tribune had acquired the paper, the circulation games started years before the Chicago company owned the tabloid that serves Long Island, the nation’s most populous suburb, 1,400 square miles of woods, roads, and seashore that is home to both waterfront mansions in the Hamptons and gritty slums around Hempstead. Almost from the day that the Colonel’s niece, Alicia Patterson, started Newsday in a Hempstead garage, the paper had made dizzying circulation gains. With an attractive tabloid format and a stable of smart writers, Patterson upended the conventions of subu
rban American journalism, much as her father had done with the Daily News in Manhattan. Within seven years, Newsday turned a profit, and by the time her husband, Harry Guggenheim, sold the paper to Times Mirror in the late 1960s, other American newspapers drooled at the way Newsday dominated its market.

  Newsday was a showcase example of the pros and cons of a local monopoly. In its messages to advertisers, Tribune’s only tabloid boasted the “highest household penetration in its circulation area of any major daily in the United States.” In 2000, Newsday claimed that it reached 73 percent of adult readers in Suffolk and Nassau counties, far higher than the Los Angeles Times (37 percent) or the Chicago Tribune (41 percent). Year after year, Newsday carried more retail, automotive, real estate, and job recruitment ads than any newspaper in the New York market. It had three times more real estate advertising than the Daily News and four times more financial ads.

  Nestled among the white-fenced, sprawling estates and low-rise office buildings in suburban Melville, Newsday wasn’t one of those tabloid papers with lurid headlines like the New York Post; it used its enviable ad revenues to hire columnists like Jimmy Breslin, Pete Hamill, and Gail Collins; publishers like Bill Moyers; and editors like Tony Marro, a first-rate journalist who for years ran the paper that won nineteen Pulitzer Prizes and probably deserved more. But talent alone didn’t bequeath Newsday the kind of dominance it enjoyed on Long Island; the paper needed muscle, too. It needed people like Louie Sito.

  From all appearances, Sito didn’t look like the Charles Atlas of the Long Island newspaper world. Slim and wiry, with a thick head of swept-back hair and a full gray mustache, Sito was a fast-talking Cuban with a sly smile who had emigrated to America in the 1960s when he was sixteen. After he landed a job on the loading docks of the Chicago Sun-Times, he began inching his way to a job in the American newspaper game, substituting guts, brains, and tough talk for the connections that usually spell success. Privately, Sito viewed the people who ran the newspapers where he worked as a bunch of privileged, country club snobs who had hired him because they didn’t like to get their hands dirty. Generous with family and friends and suspicious of outsiders, Sito was hot tempered, but he had uncanny instincts for a good deal. And he wasn’t above cutting a corner or two to get what he wanted.

  Sito left the Sun-Times abruptly in 1964 and knocked around in a variety of jobs until 1990 when a friend from Chicago tipped him off about a job at Newsday where he could capitalize on his Sun-Times experience. Within two years, Newsday put Sito in charge of its distribution arm, and in 1994, when Ray Jansen became publisher, Sito was made vice president of circulation: the guy in charge of getting the paper out onto the streets. By 1999, Sito was vice president of sales, the number-two job in the company that put him in charge of Newsday’s and Hoy’s circulation, distribution, and advertising departments.

  A federal prosecutor who investigated Newsday described the paper’s business model as a curious mix of Stalinism and capitalism:If Stalin said you would produce 1,000 tractors, you would produce 1,000 tractors, whether or not they rolled off the production line. Even before Tribune, Jansen would not permit the circulation number to fall. It would simply not go down. He didn’t want to hear it. Factor in that you then have the smartest guys from FitzSimons on down saying you have to hit your number and that we can always do more with less and you must meet your targets. If that’s what the top people at Tribune are telling people, how do you expect them to meet these targets?

  But what Sito discovered was that no one at the top asked him much about how he hit the numbers as long as he continued to hit them.

  Sito’s job at Newsday evolved into two broad responsibilities: solidifying the paper’s local monopoly, and manipulating the circulation to make sure the numbers always rose. Sustaining the monopoly was pretty straightforward. If competing media entered Newsday’s market, Sito showed up at the door with Newsday’s checkbook to try to buy them out, regardless of whether it was a successful Pennysaver or Shopper or a struggling newspaper distributor. And usually he succeeded.

  The second part of Sito’s job was a bit more complex and risky. Anyone who has ever subscribed to a newspaper has heard the familiar “thump” a newspaper makes when it hits your door or doorstep in the morning. It is a simple and reassuring sound, something that starts many a day, almost like an alarm clock set off by carriers like those Sito controlled. But the process behind that thump is not so rudimentary. Newspaper delivery systems are complex, easy to manipulate, and instrumental to the rates advertisers pay and then pass on to consumers.

  To make sure that Newsday’s circulation increased, Sito and his team used—and abused—the three methods by which publishers placed newspapers into the hands of readers. In most cases, readers called the paper or responded to an ad and gave their mailing addresses and payment information, and Newsday would soon show up on their doorsteps. Newsday also sold the paper wholesale to independent agents who charged readers retail and covered delivery costs with the difference. Advertisers liked home-delivery circulation best because readers who ordered Newsday delivered to their homes were the most likely to read the paper and see their ads. Sito liked the independent sales agent approach because he could treat them just like Jansen and the Tribune bosses treated him: He told them what he wanted done and demanded that they deliver.

  For those who preferred to buy the paper a day at a time, Sito sold Newsday wholesale to dealers who provided single copies of Newsday to readers who paid the cover price at coffee shops, delis, and grocery stores or to hawkers, down-on-their-luck souls who stood out on the street to sell papers to motorists stopped at red lights. If single-copy dealers had leftover papers they couldn’t sell, they were supposed to return them to Newsday to receive credit for the unsold copies, which were not counted in the paper’s circulation figures. Advertisers didn’t like single-copy as much as home-delivery readers, but Sito did, particularly copies sold by hawkers.

  Sito and his team also sold bulk subscriptions: a block of dozens of newspapers that businesses such as hotels could sell—usually at a discount that could reach 75 percent off the cover price—or pass out to customers as a sort of bonus for using their service. Advertisers didn’t like bulk subscriptions because it was hard to know if the person getting the paper bothered to look at it. But many newspapers used bulk circulation to inflate their numbers. Sito and his operatives simply took the process to new levels.

  Jansen and Sito’s bosses at the Tribune pressured circulation chiefs to hit their numbers for all kinds of reasons, but the main incentive was that higher circulation generally translated into higher rates for advertising—the dominant engine of revenue at newspapers. Ad revenue at papers like Newsday typically accounted for 80 to 85 percent of the cash that flowed in from grocery stores, car dealers, employers, and department stores trying to lure Long Island consumers to their doors. In fact, for every dollar in circulation revenue that Tribune papers made, they typically got five to six dollars in ad revenue. So there was a huge incentive for Jansen, Sito, and the Tribune Company to put the best face on the numbers that reflected how many people bought and read their newspapers.

  Although most people in the American newspaper industry don’t like to admit it, lying about circulation is a time-honored tradition in publishers’ suites. It’s hard to say who started fudging the numbers, but one of the first times that the practice surfaced publicly was in 1876 when Victor Lawson took over the Chicago Daily News and said he would no longer conform to the industry’s practice of treating circulation figures as trade secrets. With a fair amount of hubris, he announced that he would document his actual circulation numbers in the Daily News front-page streamers claiming to have the largest circulation of any evening paper in Chicago, astonishing his red-faced ad manager who convinced him to back off until the numbers actually reached the level the paper was privately touting to advertisers.

  Circulation fraud was so prevalent at the time that the patent medicine industry urged American pu
blishers to create a credible system to measure circulation. In 1914, newspaper publishers endorsed the creation of the ABC, a board composed of representatives from the industry and advertisers to set common standards by which newspapers could be reliably measured and to hire and train auditors to keep papers honest. Over the ensuing decades, the system had its ups and downs but seemed to work fairly well until circulation started declining, particularly after 1990, when it became clear that real circulation growth had gone the way of the Linotype. That’s when newspapers like Newsday got creative.

  At first, the industry simply changed the yardstick. Each household that receives a paper typically has more than one reader. So newspapers claimed the real number to look at was readership—a much squishier number calculated by research firms that made the industry look better. But ABC continued to publish the circulation results for the nation’s largest newspapers and reporters covering the industry continued to focus on them, prompting industry leaders to criticize coverage for focusing on negative circulation results. For their part, reporters didn’t begin to detect that the industry played with the numbers until scandals erupted publicly at papers like Newsday. Had papers like Newsday dedicated the imagination and creativity they used to inflate circulation to their real problems, I doubt they would be in such trouble today.

  Most advertisers that commit ad dollars to newspapers focus on paid circulation, particularly home-delivery customers, but also those who buy single copies. They don’t like copies handed out for free. In fact, under ABC rules, newspapers aren’t supposed to count papers that publishers give out free or discount deeply. But Sito and his team devised ingenious ways to circumvent the rules. Newsday sponsored events like the popular hot-air balloon races on Long Island, a show that could draw tens of thousands of residents, most of whom needed a place to park their cars. Thinking fast, Sito’s team helped line up parking for $2 and gave each driver a copy of Newsday, one of the benevolent sponsors of the races. Under ABC rules, free parking-lot papers couldn’t be counted as paid circulation, but that didn’t stop Sito. Anyone who looked closely at the tiny, fine print on the $2 parking ticket would discover that they had actually paid $1.25 to park and $.75 for Newsday. Under ABC rules, that was paid circulation.