Yet until the early 1960s, the Times was a wretched newspaper, the second-worst big paper in the country (after the Chicago Tribune). Its news reporters delivered propaganda for the Chandler family and downtown businessmen, promoting the region's real estate and Republicans, defaming unions and opposing civic reform.
But after the third Chandler, Otis, took over in 1960, the prodigal son not only turned the Times into a world-class paper but he also made it fantastically profitable. He did so by spending heavily on advertising, promotions and, most of all, journalism.
PHOTO COURTESY OF BUSINESS WIRE
L.A. Times Editor Davan Maharaj: "We've produced great journalism under a cloud of bankruptcy."
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"He opened up bureaus around the world," Wolinsky says. "He spent money like water."
In the 1980s and '90s, reporters at then–Times-Mirror Square were handed first-class tickets when flying to cover stories in other cities. Top reporters took the occasional rare lunch in the Tamayo Room or Picasso Room, both elegant, upstairs dining rooms where Times executives ate among low-numbered lithographs by the two famed painters.
In 2000, the Chicago-based Tribune Co. bought Times-Mirror for $95 a share. The Chandler family came out owning a chunk of the Tribune Co.'s many papers, TV stations and the Cubs, while Tribune Co. got control of the L.A. Times.
Tribune Co. execs demanded that the Times' balance sheets start to resemble the Chicago paper's balance sheets.
"They seemed to consider the things they saw at the Times as hedonistic," Wolinsky says. "The L.A. people lived too well, spent too much." The Chicago owners "were insulted by it."
Coin-operated aspirin machines were installed in the Times newsroom — no more free aspirin handed out by secretaries. Executives' names were removed from special parking spots.
Those small insults might be forgotten today, but they accompanied a national collapse in display advertising, thanks to the Internet, as well as the near-obliteration of newspaper classified ads due to Craigslist and free websites. In a parallel to what slammed the unprepared music industry, millions of consumers stopped paying for newspapers — they could get their news free, and fresher, online.
By 2006, the Chandlers wanted out. Geffen was interested; so were L.A. billionaires Eli Broad and Ron Burkle. But the spoils went to Sam Zell, the real estate mogul who looked like a character from Tolkien's Middle-Earth dressed for a night at a disco.
Zell's nickname was "Grave Dancer," and his crassness disgusted many journalists — he once suggested that Tribune papers allow X-rated ads because "everyone loves a good blow job."
"He was the most vulgar, repellent rich person I've ever met," says Tim Rutten, a journalist at the Times for 40 years, who was laid off in 2011.
Zell borrowed $12 billion from four investment banks and bought up all Tribune Co. stock — at $34 a share. He made the purchase through an employee stock ownership plan (ESOP), saving Zell a small fortune in taxes if he could just hold on for 10 years. Best of all, the debt was loaded onto Tribune Co. itself. Zell personally put in only about $315 million.
Zell figured that if he could keep revenue from falling and pay down the $12 billion debt — from that same Tribune Co. revenue — he could make $5 billion, an enormous return. But if revenue fell, Tribune Co. would owe more than it was worth, like a house with an underwater mortgage. That's what happened, amidst the global financial meltdown. By April 2008, four months after buying it, Wolinsky says, Zell "had already hired a bankruptcy firm." On Dec. 8, 2008, Tribune Co. filed for Chapter 11.
"Given how ugly the Tribune leveraged buyout was, and how poorly conceived it was, there was gonna be nasty litigation," says Jonathan Lipson, who teaches bankruptcy law at Temple University.
The L.A. Times (plus the Chicago Tribune, Baltimore Sun, Orlando Sentinel, South Florida Sun-Sentinel, Hartford Courant, Daily Press and Morning Call) fell into what Lipson calls the "shadow bankruptcy system," an unregulated market where debt is bought, sold, sliced, diced and resold — like mortgages.
In this market, banks get rid of crappy assets and take a modest loss while the new investors get a chance to own a large piece of a company at a discount.
After years of bankruptcy-court wars, three large firms emerged as the key buyers, or holders, of Tribune senior debt: Los Angeles–based Oaktree Capital Management; Angelo, Gordon & Co.; and JPMorgan Chase & Co.
The biggest voice among these, in deciding the great civic and political question of who will buy the Los Angeles Times, is Oaktree Capital, run by dashing billionaire Bruce Karsh. Oaktree was awarded roughly one-quarter ownership of Tribune Co., while Angelo, Gordon & Co. and JPMorgan got about 9 percent each. Many other players got smaller chunks.
Karsh now is chairman of Tribune's board of directors, and the company is valued at about $4.5 billion, mostly thanks to TV and cable properties including WGN, KTLA Channel 5 and the Food Network. The eight newspapers are valued at just $623 million. (Zell sold the Cubs in 2009.)
L.A. residents will hear more of Karsh, a former appellate clerk to now–Supreme Court Justice Anthony M. Kennedy, summa cum laude grad of Duke University and a former assistant to billionaire Eli Broad in Broad's days at SunAmerica.
