The Deal from Hell (26 page)

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.

I
n 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 suburban 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 w
here 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:

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.