Zell If He Knows

Connie Bruck's good piece on Zell doesn't ask the key question: how to drive TribCo revenue?

Connie Bruck’s excellent profile of Sam Zell in this week’s New Yorker contains information that even close Zell-watchers did not know.

For instance, Zell testified against his brother-in-law, Roger Baskes, in a 1976 tax-avoidance criminal case stemming from a Zell-conceived real-estate deal in Nevada. Baskes was sentenced to two years in prison, but today remains close to Zell and is an investor. Zell is candid about the affair and comes across sympathetically, as Bruck reports:

The lesson of the case, he concluded, was that ‘the government has unlimited resources with which to chase you, and anybody who thinks he can take on the government is kidding himself.’ Zell has since avoided investments involving the government, such as state-sponsored real-estate projects. ‘Government scares the hell out of me,’ he said.

The story also elaborates on his relationship with Robert Lurie, a friend and partner who died at the age of forty eight in 1990. Bruck shows just how alone Lurie’s death left Zell as the real-estate crisis of that era was hitting bottom.

‘Sam was derailed when Bob died, but he couldn’t appear to be too devastated publicly, because it was bad for the business, and I couldn’t either, for the children’s sake,’ Ann Lurie, whose six children were between the ages of five and fifteen when her husband died, said. ‘But the two of us would sit in a room together, and there we could show it.’ He told her that he would never have another partner.

Sure, much of the story revisits material that has been fodder for Zell profiles for many years: that he is an avid motorcyclist and skier who meticulously plans annual parties; that he gives away elaborate music boxes featuring songs and messages from Zell himself; that he dresses casually but richly and employs salty sexual references in conversation.

But in recycling this material, Bruck does hint at one unspoken truth: Zell may be a billionaire, but he’s not the wit he thinks he is.
Those music-box songs, for instance, are not terribly funny. They’re not really anything.

The song plays to the tune of the fifties hit “Love and Marriage”—“Sarbanes-Oxley/ They’ve got moxie/ But for businesses/ Their act is toxic/ It’s not rocket science/ We’re killing profits with compliance”—and two claw-like hands creep forward, as though to strangle the free market.

That’s all good stuff. However, the subheadline of the story asks a good question but leaves it unanswered: “Where will Sam Zell take the struggling Tribune Company?”

Bruck explains that Zell’s pending buyout would turn a public company into an unusual private one that would pay no income taxes as long as it passes profits on to its sole shareholder, an employee stock ownership plan. Among the risks that come with this tax-avoidance benefit is the laying on staggering amounts of corporate debt—$13 billion—and the channeling of employee-retirement contributions into the company, not to a diversified 401(k).

In the end, however, the Tribune faces the same question as the rest of the media business: how to drive revenue? The question comes up in the Bruck story, but only in the context of a passage about possible job cuts after the deal.

Zell has frequently been asked whether there will be further job cuts at the [L.A.] Times or at other Tribune newspapers. He always replies by saying that he believes that the solution lies not in cost-cutting but in finding ways to increase revenues.

I’ve written before that Zell’s strategy for the flagship of his real-estate empire, Equity Office Properties Trust, hinged, like that for Tribune Co., on finding new sources of revenues. None of a variety of schemes worked, and his record as an operator—as opposed to dealmaker—is poor.

Bruck doesn’t confront the question of how to increase revenue nor does she ask Zell about it. That’s a flaw in the story, but a minor one. If she had asked, I suspect, we would learn he doesn’t know, either.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.