On a recent Wednesday afternoon, Sam Zell, the iconoclastic Chicago
businessman, breezed into his New York City office, on Madison Avenue,
fresh from a week of motorcycling through the Tuscan countryside. “It
was absolutely spectacular,” he said. “I’ll tell you, the one thought
that just kept going through my head all week long was, I’m seventy-five
years old. I’m riding faster and better than I ever have in my life.” He
wore his usual outré uniform of pressed black jeans and black T-shirt,
and was his typical jovial and provocative self. He was in town
ostensibly to promote his new book, “Am I Being Too Subtle?,” a chatty memoir that is an homage both to his parents—Jews who escaped Poland in
1939—and to his own entrepreneurialism, which has helped him to
accumulate a fortune estimated by Forbes to be five billion dollars.
Zell attributes his wealth to a prescription articulated by any number
of successful business people: zigging when everyone else is zagging.
It’s a replicable formula, he says, and he has little patience for
people who complain that it was somehow easier in the good old days, or
that the moment for such opportunities has passed. (His earliest
successes came from investing in real-estate assets that others shunned.) “My
message is, anybody can do it,” he explained. “They’ve got to be
focussed. They’ve got to be driven. They’ve got to have a tin ear to
conventional wisdom. They’ve got to think outside of the box.” He
refuses to listen when he’s told he can’t do something. “I spent my whole
life listening to people explain to me that I don’t get it,” he says. “I
look at the Forbes 400 list, and if I eliminate the people who
inherited the money, everybody else went left when conventional wisdom
said to go right. How did I do what I did? By not listening to anybody
else.”
It was this singular thinking, in part, that led to Zell’s biggest
financial miscalculation: the December, 2007, acquisition of the Tribune
Company, for $8.2 billion. At that time, Tribune was a venerable but
troubled collection of newspapers, including the Chicago Tribune, the
Los Angeles Times, and Newsday; the superstation WGN America; the
Food Network; twenty-three local and regional television stations; and
the Chicago Cubs. (He quickly sold off Newsday and the Cubs.) He knew
that the newspaper industry was struggling and in serious disarray.
That’s why the deal he structured to buy the company was classic Zell:
awfully clever, perhaps too clever. He borrowed billions of
dollars ($11.5 billion, to be precise, bringing the total amount of debt
on the company to fourteen billion dollars) and risked just enough of his
own money, through Equity Group Investments, his investment firm—three
hundred and fifteen million dollars, about six per cent of his net
worth—so that he could lose it without feeling too much pain.
Zell took the company private, alongside the Tribune’s employees,
through an employee-stock-ownership plan, or ESOP, which resulted in
both tax benefits and the employees becoming his equity partners. He
promised them that if the deal succeeded, they would get rich (and Zell
would get richer). After the deal closed, he says he went around the
company and met every person who worked for Tribune. “I looked up each
one of them and I said, ‘Guys, if this doesn't work, it’s not going to
change my life style. But if this does work, it’s going to change yours.
So climb onboard.’ ”
He also insulted them. He referred to Washington bureau reporters as
“overhead,” and his
suggestions to put ads on the front pages of the newspapers also
offended them. In Zell’s telling, the employees were simply not wise
enough to follow his lead. “I’m talking about survival, and they’re
talking about journalistic arrogance,” he said. “I rest my case.”
Ann Marie Lipinski, who resigned as the Chicago Tribune’s editor in
2008, before sweeping staff cutbacks were carried out, flatly dismissed
Zell’s version of events. “I’m sure that’s a comforting narrative for
him, but it’s rubbish,” Lipinski, who is now the curator of the Nieman
Foundation for Journalism at Harvard, wrote in an e-mail. “The idea
that employees opposing innovative ad placement were what brought the
company to its knees demonstrates some real revisionist history.”
Zell made other mistakes. Randy Michaels, the former radio executive he
chose to run the Tribune’s media properties (Michaels ran Jacor, a
successful radio company that Zell bought out of bankruptcy in 1993), set a
frat-house tone, and, as David Carr wrote in the Times, his
“and his executives’ use of sexual innuendo, poisonous workplace banter
and profane invective shocked and offended people throughout the
company.” He also underestimated how quickly the company’s revenues were declining, and
within a year, the company had filed for bankruptcy, undone by a toxic
combination of too much debt, plunging ad revenue, a general disruption
confronting print media, and, to a lesser extent, the Great Recession.
Needless to say, Tribune employees did not get rich.
Some blame Zell for being the architect of a leveraged buyout comprised
of roughly ninety-eight per cent debt and two per cent equity. “A
virtually no-money-down L.B.O.,” David Rosner, an attorney for a
Tribune creditor, said at a December, 2009, bankruptcy court hearing. “In
April of 2007, Tribune agreed to undertake—and the funding banks and,
now, the hedge funds as successors, they agreed—they funded this massive
amount of debt to permit Mr. Zell to acquire control of Tribune. That is
the L.B.O. that drove this company into bankruptcy.” Zell said, of the
Tribune experience, “I made a bet. I thought the bet was reasonable. I
underwrote it appropriately. I was wrong.” He lost his entire
investment.
Though the fate of the Tribune newspapers got the most attention during
the Zell years, it was the other properties, especially the TV
stations, that interested him as a businessman, as Connie Bruck wrote in
the magazine, in 2007. In part
because of the failure of Zell’s leadership at Tribune and the debt he
piled on it, those stations will now likely be used to form a
conservative nationwide television rival to Fox News.
After emerging from bankruptcy after four years, and owned by its
creditors, Tribune split itself into two pieces—the absurdly named
Tronc, short for Tribune Online Content, its publicly traded newspaper
group—and Tribune Media, its growing collection of local television
stations. In May, Sinclair Broadcasting, which already owns a hundred
and seventy-three television stations around the country, agreed to buy
Tribune Media, with its forty-two stations, for $3.9 billion. Regulators are
still evaluating the deal, but it now appears it will be completed.
Sinclair has a reputation for its conservative bent in many markets and
recently hired as its chief political analyst Boris Epshteyn, who served
as an often contentious spokesman for Trump’s Presidential campaign and
then briefly as a White House adviser. (In his new gig, Ephsteyn
recently criticized CNN, saying that it, "along with other cable news networks, is
struggling to stick to the facts and to be impartial in covering
politics in general and this president specifically.”)
As a bottom-line-oriented dealmaker, Zell is indifferent to the fate of
the Tribune’s television stations. “It's all predictable because
effectively they no longer had scale and they no longer had an owner,”
he said. “Then it becomes a financial transaction.” But by this point
in our conversation, he had had enough talk of the Tribune deal.
Unlike many other Wall Street types, he’s not particularly worried about
Donald Trump, though he is hardly a fan. Zell did not give money to
Trump during the Presidential campaign (he declined to say whom he
supported or voted for) but said that he finds Trump to be far preferable to
Hillary Clinton.
He repeated what has become almost a cliché: that the élites on the
coasts completely missed Trump’s appeal. “I live in the Midwest,” Zell, whose primary home is in Chicago, said. “You do not understand how angry
the people in the middle of the country were. ‘Angry’ is the best
description. That may be an understatement.” Their anger was directed at
Washington politicians and regulators who tell people what they can and
can’t do. “When you’re a farmer, or you’re a landowner, and you got a
puddle on your ground, and last week it was a ‘puddle’ and now it's
‘navigable waters,’ that’s pretty serious shit,” he said. “I think
that’s the major problem of the Democratic Party, is exactly that
stretch.”
Zell said that Trump’s Electoral College victory was about the people in the
heartland sending a powerful message: “We count. You’ve been running
this country for the benefit of urban élites.” (He concedes that he,
too, is an “urban élite,” but he also appreciates the wisdom of the
message.) He said he thinks the “East Coast and West Coast liberals” are still
in denial. “They can’t believe he got elected,” he said. “They can’t
believe what he does.” Zell can. “I don’t think Trump is the disaster
that the New Yorkers would like to portray him as,” he said. But he’s
given up watching CNN because of what he sees as its anti-Trump bias. “I
don’t like listening to Fox, either,” he said, “because it’s so biased.”
The sale of the Tribune television stations to Sinclair won’t make
Zell’s dilemma about where to get his unbiased news any easier. And, in
fact, it may exacerbate the growing schism between progressives and
conservatives, further hardening already stark divisions. That’s a
problem that Zell the businessman may choose to be matter-of-fact about,
but not one that Zell, the son of clever and lucky immigrants, can
afford to ignore.