PREFACE: A Business Deal Done--A Controversy Born
CHAPTER 1: The Deal
CHAPTER 2: The Debate
CHAPTER 3: The Meeting
CHAPTER 4: The Decision
CHAPTER 5: The Hard Sell
CHAPTER 6: The Prelude
CHAPTER 7: The Visitor
CHAPTER 8: The Press
CHAPTER 9: The Wall
CHAPTER 10: Otis
CHAPTER 11: The Aftermath
Journalism Is A Very Different Business--Here's Why [see sidebar]
Another Staples-Like Proposal Was Made to Times [see sidebar]
PREFACE / A Business Deal Done -- A Controversy Born
The newsroom at the Los Angeles Times was in turmoil--in open revolt. For several years, pressures for higher profits had reduced the size of the news staff and the space available for news in the paper. Increasingly, business concerns seemed to be influencing editorial decisions in ways long forbidden at The Times and at all respectable big-city newspapers.
Then, on Oct. 10, The Times had published a 168-page special issue of its Sunday magazine, devoted entirely to the new Staples Center downtown; only after it was published did most of the paper's journalists learn that The Times had split the advertising profits from the magazine with Staples Center. That arrangement constituted a conflict of interest and violation of the journalistic principle of editorial independence so flagrant that more than 300 Times reporters and editors had signed a petition demanding that their publisher, Kathryn Downing, apologize and undertake "a thorough review of all other financial relationships that may compromise The Times' editorial heritage."
Downing did apologize, and she and her boss, Mark Willes, chairman and CEO of The Times' parent company, Times Mirror, acknowledged that the profit-sharing agreement had been a mistake. Passions have cooled somewhat during the past two or three weeks, at least on the surface, and Willes insists that recriminations over the Staples blunder should not be allowed to stifle creative thinking and risk-taking at The Times. Newspapers that don't take appropriate risks to meet the challenge of a rapidly changing media environment are doomed to die, he says. But many in The Times newsroom see the Staples affair as the very visible and ugly tip of an ethical iceberg of ominous proportions--a boost-the- profits, drive-the-stock-price imperative that threatens to undermine the paper's journalistic quality, integrity and reputation.
Some people in the newsroom have openly called for the resignation or ouster of Downing and Willes. Some even question the tenure of Michael Parks, the paper's top editor, who is widely regarded as having done too little, too late on the Staples scandal--and as having been either insufficiently vigilant in struggling against incursions by the business side or worn down after almost two years of fighting the incursions.
An Explosive Meeting
In a heated confrontation with a standing-room-only crowd of Times newsroom staff members in the paper's ground-floor cafeteria 18 days after the Staples issue of the magazine was published, Downing said she took full responsibility for the profit-sharing agreement and for the controversy that ensued. She, like Willes, had no newspaper experience before coming to The Times. He had been a cereal company executive for 15 years before taking charge of Times Mirror in 1995, and she had been in charge of legal publications before taking over as president of The Times in March 1998. She became publisher 15 months later and had been in that job for less than five months when the Staples scandal broke.
Downing said a "fundamental misunderstanding" of basic journalistic principles had led her to not tell Parks about the profit-sharing agreement. She said she had thought that if no one in the news department of the paper--including those who worked on the Staples issue--knew of the agreement, there could be no doubts about the editorial independence of the effort.
Even if she was right about no one in the editorial department having known about the profit-sharing agreement--and there remains widespread and understandable skepticism about that assertion--she was wrong about the preservation of the paper's journalistic standing.
The Times' credibility and integrity--ultimately the only commodities a newspaper has to offer--have been severely compromised at a time when public confidence in the press is already in deep decline. Other prominent news organizations have raised troubling questions about The Times' profit-sharing agreement, and many readers have called, written and e-mailed the paper with comments like the one from Jean Shin of Los Angeles: "The Staples Center controversy shook my faith in not only the judgment but the ethics of your paper. I have since canceled my subscription."
Why should Shin or any other reader believe that the reporters and editors involved in the Staples issue hadn't known about the profit-sharing agreement in advance, especially since the glitzy, advertising-fat magazine had an undeniably commercial and promotional feel to it? Emblematically, as it turned out, one of the better features in the magazine--a four-page fold-out filled with useful and interesting information incorporated into an artist's rendering of how the arena was built and how it would function--was hidden behind a two-page, center spread Toyota advertisement whose four inside corners were glued shut; readers could not see the editorial material unless they got curious and peeled back the ad.
But the profit-sharing agreement raised questions that went beyond that single issue of the Sunday magazine. Why should Times readers trust anything The Times wrote about Staples Center, or any of its tenants or attractions, anywhere in the paper, now or in the future, if The Times and Staples Center were business partners? More important, how many other such improper arrangements, formal or informal, might also exist or be created in the future with other entities, agencies and individuals covered by The Times?
Potential for Conflict
To be sure, The Times is not the first newspaper to make a deal with a local sports arena or sports team that raised questions. The owners of USA Today, the Chicago Tribune, the Dallas Morning News, the Arizona Republic, the Pittsburgh Post-Gazette and the Rocky Mountain News in Denver have all invested in sports teams. Even if these newspapers are scrupulously fair, such arrangements put them in the awkward position of having to cover, on a regular basis, teams that are part of their own corporate families. The potential for--and the appearance of--a conflict of interest is inevitable.
In a poll published early this month in Editor & Publisher magazine, 51% of the 60 publishers who responded said they found The Times' profit-sharing deal "acceptable." But the 60 respondents represent less than 3% of all daily newspaper publishers, and almost two-thirds of the respondents run papers with less than 100,000 circulation, where standards often tend to be looser and ties with local civic and commercial institutions much closer than in big cities. The Times has a circulation of more than 1 million, and no publisher whose paper has a circulation of more than 500,000 found the profit-sharing acceptable.
In the case most often compared to The Times', the Boston Globe published a special section on the new Fleet Center arena in 1995, with the arena acting as a sales agent for the Globe; the Fleet Center received a commission on the ads it sold. But the Globe didn't give the Fleet Center half its profits from the section and it did not become a "founding partner" of Fleet Center, as The Times did with Staples Center.
As a result of its deal, The Times was widely pilloried for its "willingness to sell off its editorial integrity for some golden coins," as Robert McChesney, a communications professor at the University of Illinois, wrote in Newsday, The Times' sister paper in New York.
The Watergate Question
Enraged and embarrassed by the deal, and by the journalistic scrutiny it drew from coast to coast, Times journalists now fear that the very essence of their work--the bond of trust between them and their readers--has been jeopardized. Throughout the paper, one question has echoed, the question that has been known in journalistic circles for the past 25 years as the Watergate question: "What Did He Know and When Did He Know It?"
At The Times, "he" is Parks--and sometimes, the "he" has become "they"; what did any of the top editors (or anyone else in the editorial department) know about the profit-sharing arrangement and when did they know it?
Willes served as Times publisher for 19 months before picking Downing as his successor last summer, and he promised early on to "use a bazooka, if necessary," to blow up The Wall that has symbolically and traditionally separated (and insulated) the news operations at most good newspapers from any business-side intrusion. In response to Willes' call for demolition of The Wall, there has been more communication and cooperation between the news and business departments at The Times in the last two years than ever before. Similar changes have been taking place at other newspapers, large and small, across the country as newspapers struggle to find new revenue and new readers in the face of declining circulation and increased competition from a wide variety of information and entertainment sources. But the changes have been particularly dramatic at The Times, in part because Willes announced them publicly and instituted significant organizational changes designed to implement them. Under these circumstances, with editors and business executives meeting together frequently, it seems unlikely to many at the paper that the profit-sharing agreement was never mentioned at any of these joint meetings, from the time the contract with Staples Center was signed until the details surfaced, quite by happenstance, nine months later, after editorial work on the issue had been completed.
Absence of Discussions
Journalists are natural-born skeptics, so it's not surprising that they would question this assertion. But many on the business side make the same point, among them Holly Bowyer, who was general manager of the Los Angeles Times Magazine when early discussions about Staples coverage took place. Although Bowyer didn't participate in any high-level meetings herself and says she feels "uncomfortable" speculating about them, she echoes the thoughts of many of her colleagues when she says she would "find it hard to believe that it never came up . . . in front of editors."
No editors acknowledge having heard about the profit-sharing agreement until well after all the editorial work on the issue was done and it was at the printing plants. Willes says the absence of that kind of discussion only proves the need for "more communications, not less." The profit-sharing deal happened not because The Wall came down, Willes says, but because people didn't talk to one another when they should have.
Ironically, every editor outside The Times interviewed for this story said the profit-sharing couldn't have happened at their newspapers precisely because they do have good communications between the editorial and business departments, even though none has dismantled The Wall as thoroughly as Willes has.
"Dumb ideas can start anywhere," says Joseph Lelyveld, executive editor of the New York Times. "We're far from infallible. But it's hard to imagine that happening on [our] . . . magazine."
Other editors used words such as "inconceivable" and "impossible," and one former publisher of the Los Angeles Times--Richard T. Schlosberg III--said: "I can't imagine doing something like this without being in lock-step with the editor.
"I haven't been there in two years," he said, "and until you walk in someone's shoes, you hate to second-guess. But . . . we spent a lot of time on interdepartment communications"--so much so, he says, that he and Shelby Coffey III, then-editor of The Times, were "joined at the hip on all editorial projects and even on noneditorial projects . . . peripheral activities that could have some residual impact on the newsroom."
Schlosberg was publisher of The Times for almost four years and before that was publisher of the Denver Post for five. Would he, as publisher, have approved a profit-sharing deal like this one?
"No," he said. "I don't think it would have been proposed."
'It Didn't Register'
Willes says that he didn't know about the profit-sharing arrangement until he heard it mentioned over lunch in the executive dining room, well after work on the magazine was underway. "I assumed Michael and Kathryn had talked about it," he says, but "I didn't realize it was wrong. Shame on me for that. It didn't register the way it should have. . . . It didn't become a life-changing experience until after [the controversy erupted], not before."
Even though it was "a life-changing experience," Willes says he still hasn't looked at the original contract that led to the profit-sharing issue. He knows what's in it, he says, so why read it?
Is Willes trying to distance himself from the whole affair? After all, he, not Downing, was the publisher when the contract was negotiated and signed--and when the decision was made to do the Staples issue of the magazine. But he says that he wasn't "directly involved" in any of those decisions. Downing, then president and chief executive of The Times, was taking over some of Willes' duties at the time in preparation for becoming publisher, and in keeping with his philosophy of "giving people more authority and accountability and responsibility than it looked to many like they could handle."
"If they have the right abilities and instincts," he says, "they rise to the occasion."
The profit-sharing arrangement on the magazine wasn't a secret on the business side of the paper, though. No one there, from Downing on down, seemed to think there was anything wrong with it, and it was discussed quite openly for most of 1999. Downing says that while she deliberately withheld the information from Parks, she did not direct her subordinates on the business side not to talk about it to him or to anyone else in editorial. How could she have expected them not to mention it, at least in passing, if not in the course of discussing its implementation? Her answer to that question is "It worked"--i.e., no one did tell Parks.
But few at the paper seem to accept her explanation, and alternative scenarios have sprouted like sunflowers in Provence. Although some think that she did tell Parks and he either objected and was overruled or he didn't realize how grievous a mistake it would be, he and Downing deny that, and those who know him best scoff at those theories.
Parks was a Pulitzer Prize-winning foreign correspondent who spent 25 years covering such places as China, South Africa and the Soviet Union. "He's too smart to not have recognized it [as a problem], and I think his sense of integrity is too high not to have tried to do something about it," says Karen Wada, the paper's managing editor in charge of national and foreign coverage and special projects.
Others at The Times and elsewhere suggest that Downing--an attorney and an experienced businesswoman--had to recognize the conflict of interest inherent in the profit-sharing agreement. If she didn't tell Parks, they say, it was because she was determined to plunge ahead with the project anyway and feared he might object and obstruct. Although Downing has many critics inside and outside the paper, most people who know her well dismiss that theory. "I've never known her to lie or even to shade things to her benefit," Willes says.
But there is at least one other explanation for her not having told Parks: Given her lack of journalistic experience, it never occurred to her that she should say anything to him about the profit-sharing agreement, any more than it would have occurred to her to tell him that the paper had signed an advertising contract with, say, some minor local retailer. Although stories in Editor & Publisher magazine and in newspapers ranging from the San Francisco Examiner and the Daily News of Los Angeles to the Denver Post and Fort Worth Star-Telegram have erroneously said The Times had agreed to split $2 million with Staples Center, the profit-sharing agreement obligated The Times to pay Staples Center about $300,000; as Downing said in interviews after the arrangement became widely known, that's a relatively small amount of money for The Times, which will take in almost $1 billion in advertising revenue this year.
Of all the theories advanced so far, this is the one that would best explain why Downing didn't alert any of her subordinates to keep the profit-sharing arrangement secret from Parks; it didn't occur to her that there was any reason for secrecy. Even some of Downing's staunchest supporters don't automatically reject this theory. Dick Stanton, senior vice president and chief operating officer of the paper, says that while he's "not here to challenge the veracity of the publisher," he agrees that she may not have told Parks simply because "she didn't think it was a big deal. . . . That's much closer to the truth."
So why did she say she had deliberately withheld the information to preserve editorial independence? Was it an ex post facto rationalization designed to make her intentions, if not their outcome, appear honorable?
Downing denies this and insists that her original explanation for not telling Parks is the truth.
The Final Responsibility
And what of Parks? At the Oct. 28 meeting in which the staff challenged Downing, he said he had learned about the profit-sharing arrangement "after [the magazine] had been printed and so there wasn't an opportunity to put something in the paper." Parks says he still isn't certain of the exact date when he first heard about it, but he now thinks it may have been at a meeting in mid-September, perhaps Sept. 14, whereupon he says he told Downing that profit-sharing was an "unacceptable" practice. As of that date, though, the only portion of the magazine that had been printed was the cover, and fewer than one-third of them were done by then, according to Gary Killam, customer service representative for the Reno division of R.R. Donnelley and Sons, which was in charge of the printing. Killam says that the covers were finished Sept. 16 and the eight-page centerfold was completed the next day. The rest--the vast bulk of the 168-page magazine--was printed between Sept. 21 and 26, Killam says. Thus, Downing and Parks could have canceled the press run. They didn't do that.
If Parks' admittedly imprecise recollection of when he learned of the profit-sharing agreement is incorrect and the magazine was already largely printed, he could still have had the magazines destroyed. That's what William F. Thomas, editor of The Times from 1972 to 1989, says he would have done in that situation. "I would have burned them," he says. "You couldn't afford not to. If you take a big [financial] hit, that's too bad. You pay for your stupidity." But Downing and Parks didn't order the destruction of the magazines.
When the magazine was distributed, as scheduled, with the Oct. 10 newspaper, The Times could have published a brief notice disclosing to readers the profit-sharing arrangement and Parks' belated discovery of it. They didn't do that either. Indeed, Downing and Parks say that they never considered any of those alternatives. Both say that they thought the editorial integrity of the magazine was intact and its quality high, and once Parks learned of the profit-sharing agreement and complained to Downing about it, they focused only on developing policies to prevent anything like it from happening again.
As the editor of The Times, Parks bears the final responsibility for all editorial decisions, just as Downing bears final responsibility for all business decisions. Both now admit that they should have published a disclosure of the profit-sharing arrangement on the day the magazine appeared. But an independent, six-week investigation of the controversy and of the conditions at The Times (and in the newspaper industry in general) that made such an event possible makes it clear that the scandal could have been avoided, or at least greatly minimized, had several other people also acted differently at various points in the publishing process and its immediate aftermath.
Ill-Served by Advisors
Indeed, a number of people at the paper think that whatever Downing's own mistakes, she was also ill-served by her senior team.
"If you're new and don't have much newspaper experience, you lean heavily on your advisors who have more experience," says Beth Sestanovich, advertising director of the Los Angeles region for The Times. "Where were those folks in this process? Where were her trusted advisors? Why didn't anyone with more experience step in and say, 'Whoa, this could be a problem'? We know there are meetings that went on about the whole magazine issue itself. Who was sitting in what room when? Was there any editorial participation in some of these meetings where it may have come up, even if it was in passing, as a subject? Maybe people weren't paying attention."
Good points. Good questions.
Sestanovich is very admiring of Downing and John McKeon, The Times senior vice president for advertising. But McKeon is one of those advisors who sat in meetings, knew about the profit-sharing deal and did nothing to warn Downing that it was improper. McKeon is the most experienced high-level newspaperhand who clearly knew about the profit-sharing arrangement early on. A veteran of more than 20 years in the business, most of them at a Times' sister newspaper, Newsday, in suburban New York, McKeon says that he learned of the profit-sharing arrangement on the magazine in March, before work even began on that issue. Downing, new to the business, may not have recognized the threat that the agreement posed to the newspaper's credibility, but why didn't McKeon instantly recognize--and tell his boss--that a newspaper just can't share a magazine's advertising profits with the subject of that magazine's editorial coverage?
"Nothing will excuse my not seeing the two together and saying, 'Shit, this is wrong,' " McKeon now concedes. But he has no explanation for why he didn't say--or even think--it was wrong at the time.
Several people in the editorial department also had an opportunity to do something that might have ameliorated the damage from the Staples issue, if not before the magazine was written and edited, then certainly before it was distributed.
Two of the paper's four managing editors--John Lindsay, whose duties include oversight of the Sunday magazine, and John Arthur, whose duties include oversight of the Sports department--attended at least one meeting in early March at which other participants say information on the profit-sharing arrangement was almost certainly available in one form or another, although it may not have been discussed in a way that would have been clear to the editors. Lindsay and Arthur, both of whom vigorously opposed using the magazine for Staples Center coverage for other reasons, insist they neither heard nor saw anything about profit-sharing at that meeting or at any subsequent meeting. But Lindsay, probably Arthur, Alice Short (the editor of the magazine), Bill Dwyre (the sports editor, whose staff contributed most of the articles to the magazine) and several other low- and mid-level editors and even some reporters all learned of the profit-sharing before publication--some more than three weeks before publication--and yet no one thought to suggest to Parks or to their immediate superiors that the magazines be destroyed or that a disclaimer / disclosure be published.
"A great many of the problems in journalism can be, if not eliminated, greatly ameliorated by disclosure," says Joel Kramer, former editor and publisher of the Minneapolis Star Tribune and now a senior fellow in the journalism school at the University of Minnesota.
Dismay but Not Anger
Later, around the time the magazine was published or shortly thereafter, some people in the newsroom began talking about the profit-sharing arrangement, says Tom Furlong, the deputy national editor. "There was buzz in the newsroom. . . . It was out there." But while those who knew were clearly dismayed, no one seemed angry enough to organize a protest or demand remedial action.
"Why did it take so long to register?" Furlong asks. Why weren't people outraged? "I don't know," he says. "The fuse was lit for several weeks before the bomb went off. I don't really have an explanation for that. I can't explain it. It's kind of a mystery to me."
But the vast majority of the paper's reporters and editors--including the half-dozen or so leaders of the protest movement that ultimately did materialize--didn't learn about the profit-sharing arrangement until it was reported in the New York Times, more than two weeks after the Staples issue of the magazine was published. When they read that story, they got very angry indeed. They not only felt betrayed, they realized they faced an even bigger mystery: How could this have happened? How could one of the three or four most respected newspapers in the country--a newspaper with 23 Pulitzer Prizes to its credit--have entered into such an egregiously improper financial relationship?
The solutions to both mysteries make for a tangled tale of ignorance and arrogance, of blind loyalty and bad judgment, of deadened sensibilities and diminished standards.
CHAPTER ONE / The Deal
Tim Leiweke is the president of Staples Center. Given the political realities in Los Angeles, he knew from the beginning that he would need what he called "private dollars" to help build the new arena; unlike some cities, Los Angeles wasn't going to use a large amount of taxpayer dollars to pay for it. Staples agreed to pay $116 million for naming rights at the arena, but the arena would ultimately cost $400 million, and Leiweke needed a lot more. So, starting about four years ago, he started talking to big-name companies--Bank of America, McDonald's, Pacific Bell, Anheuser-Busch and United Airlines, among others; he wanted them to become what he called "founding partners" of the arena, and he got 10 of them to agree.
The deals made with the founding partners varied in some of their particulars but, in essence, each partner was asked to put up a substantial sum of money and, in exchange, each would receive various exclusive rights. McDonald's would be the only hamburger franchise in the arena, for example, and Anheuser-Busch would provide the only beer to be sold. In addition, each founding partner would be the only one in its particular field to have its name on signs inside and outside the arena and--among other benefits--each would have a suite of seats inside the arena.
Philip Anschutz, whose company owns Staples Center, also owns the Los Angeles Kings hockey team and most of a 25% interest in the Lakers basketball team, the two primary tenants of the new arena; through the Kings, the company already had a promotional arrangement with the Los Angeles Times. In exchange for cash payments from The Times and free advertising in the paper, The Times had been allowed to sponsor special family nights at Kings games and to have signage rights at the Forum, where the Kings played before Staples Center was built.
The arrangement was similar to arrangements The Times has with the Dodgers and Angels baseball teams--and similar to arrangements that many big-city papers have with their local professional sports teams. But for Staples Center, Leiweke wanted more. He wanted The Times as a founding partner.
Newspapers that enter into such arrangements inevitably expose themselves to at least "the possibility of conflict [of interest]," says Tom Goldstein, dean of the graduate school of journalism at Columbia University in New York. "It's much cleaner if your corporate parent has nothing to do with the subject you're covering."
Editors at many newspapers--the New York Times and Washington Post among them--agree. Such a relationship would be anathema to the Post, says the paper's executive editor, Leonard Downie.
But Los Angeles Times executives thought Staples Center could be a major contributor to the revitalization of downtown Los Angeles and they were eager to participate. "I didn't think it was worth what they were asking, though," says Jeffrey S. Klein, then-senior vice president of The Times, who supervised the early negotiations on the Staples deal. Leiweke understood.
"The Times was spending probably . . . as much as a half-million dollars in cash and in-kind with the Kings and the Forum," Leiweke says. "Our founding partners were going for . . . $2 million to $3 million" per year for five years. It was "very clear" to Leiweke that The Times wasn't going to put up that kind of money. "This was way out of their ballpark. . . . We knew that in order for us to ultimately make a deal work, we were going to have to come up with a much different concept on how to fund our package."
Negotiations stalled for several months in 1998, then got on track, Leiweke says, "when we began to change from saying, 'Here is the number that our founding partners come in at,' and instead had conversations saying . . . 'We're willing, in your particular case, to take a portion of this in cash, a portion of this in trade [free advertising] and a portion of this on ideas that we would create that would generate revenue for us, and we'd take a risk on that and apply it toward your fee as if it was a guarantee."
Why was Leiweke so eager to have The Times as a founding partner?
"We'd had great success with them on [Kings] family nights," he says. "They'd been wildly successful, 3,500 people a night, dramatically expanding our base of fan support. . . . Because of the marketing and promotional support they could provide, there was value beyond the cash" that the paper would contribute.
Mark Sande, who negotiated the final agreement for The Times, saw Leiweke's proposal as "an adventurous and creative" approach, "a good entrepreneurial idea." Times profits were down in 1998, budgets were tight and he thought Leiweke's proposal was "a way for us to be able to make this deal during a time when cash was a problem."
Sande was then general manager of The Times Sports section--a new position on the business side of the paper, one of several created by Mark Willes to improve revenue and interdepartmental cooperation. Like the other section general managers, Sande was supposed to devise ways to get new readers and more advertising for his section and to promote awareness of the section in the community. Toward that end, the deal Sande negotiated with Staples provided that The Times would get exclusive signage rights at the arena, exclusive rights to sell The Times inside the arena, a Los Angeles Times news kiosk just inside one of the main entrances, and a 16-person suite for all Staples Center events--all for substantially less money than most of the other founding partners paid.
Although all the principals in the negotiations say that the precise terms of the Staples deal are confidential, information from a variety of sources shows that, in effect, The Times agreed to pay Staples Center about $1.6 million a year for five years--$800,000 of that in cash, $500,000 in free advertising and an estimated $300,000 in profits from what Leiweke had called "ideas that we would create that would generate revenue for us."
The latter concept was embodied in clause 5d of the final contract, which said, in part, that The Times and the L.A. Arena Co., owner of Staples Center, would "agree to cooperate in the development and implementation of joint revenue opportunities . . . (e.g., a special section in the Los Angeles Times in connection with the opening of the Arena, or a jointly published commemorative yearbook). Such opportunities shall be subject to the mutual agreement of both parties." The clause went on to say that the goal of any such endeavor would be "to generate approximately $300,000 of net revenue [profit, after expenses] for each party annually."
It was that one-paragraph clause that would ultimately lead to the special Staples Center issue of the Los Angeles Times Magazine and to the momentous controversy that would follow.
At her cafeteria meeting with Times newsroom staffers 10 months after the contract was signed, Kathryn Downing would say: "I made the decision that [the Los Angeles Times Magazine] would be the product this year that we would share the revenues on." But in an interview 10 days later, she would say she didn't know who made that decision. She took responsibility for it, she said, because she's the boss and she signed the contract.
In fact, it appears that no one actually "made" the decision, as such, that the magazine would be the profit-sharing vehicle. It was generally assumed on the business side of the paper that The Times would print some kind of special publication to mark the opening of Staples Center and whatever that section was would automatically become the profit-sharing vehicle. Editors involved in the early planning for Staples opening coverage, seemingly unaware of the profit-sharing arrangement, initially--and strongly--opposed devoting a special issue of the magazine to Staples Center but did so for other reasons. In any event, the magazine itself really didn't figure in the contract negotiations.
Variety of Options
Some advertisers actually thought at first that they were buying ads in a commemorative book or program, and Leiweke says he was thinking that the first year's joint profit-sharing venture might be what is known in the newspaper business as an "advertorial." That's a special section of the paper with stories, photos and advertising, all produced by the advertising department rather than the editorial department, and clearly labeled as an "advertising supplement." The paper already did something like that for the Kings--a four-page advertorial published before the team's home opener each season. Because it is labeled as advertising, an advertorial has less credibility than a section produced by the editorial department. But it has one big advantage: Whoever pays for it controls what it says. It has no negative stories.
Klein says that he also had in mind for the first profit-sharing venture either "an advertorial or a commemorative book or maybe a program that would be sold at the Staples Center, certainly not an editorial product.
"But nothing specific was decided on," Klein says. "It was completely left open to be discussed by the partners"--Staples and The Times.
Klein, however, would not be part of those discussions.
Klein had hoped to be publisher of The Times one day, but when Richard T. Schlosberg III left as publisher in 1997 and Willes named himself to succeed Schlosberg and then, 20 months later, named Downing as president, it seemed clear that she would be the next publisher. Klein realized he wouldn't get the top job, and it didn't take long for him to find that his style and Downing's didn't mesh. By the end of 1998, he had left the company.
Klein is unwilling to criticize Willes or Downing or to second-guess his former employers, but unlike them, he had been in the newspaper business and at The Times for 15 years; he has a master's degree in journalism from Columbia University in New York, wrote a column on legal affairs for The Times for 10 years and was the paper's in-house counsel for four years before becoming an executive on the business side. Although it's easy to say in hindsight, those who worked closely with Klein find it difficult to believe that he would have approved of sharing profits on the magazine with Staples Center.
"Jeff would not have allowed anything like that," Schlosberg says. "Jeff had a very keen awareness of and appreciation of editorial integrity and independence."
But Klein spent most of December 1998 packing up and he says he left the paper without even knowing that the Staples founding partner contract had been signed.
Several other experienced executives on the business side of the paper left in the weeks and months surrounding Klein's departure--so many that the New York Times wrote a story about the upheaval, illustrated with a graphic that showed the names of 12 of the paper's top 21 executives crossed out on the paper's masthead, the list of high-level executives that runs on the editorial page every day.
Willes and Downing say that so many people left either because they accepted good job offers elsewhere or because they didn't agree with or couldn't properly implement the new strategies that Willes and Downing wanted to use at the paper. But many past and present Times executives, and several current Times editors and business-side employees, say that Willes and Downing are not receptive to criticism or cautionary advice; with Downing in particular, they say, subordinates who offer such comments with any frequency are made to feel unwelcome. Willes is more civil and subtle about it, they say; her management style is often described as "my way or the highway."
Editors and executives are reluctant to criticize Willes or Downing on the record, especially if they still work at the paper. But one former executive who is willing to do so is Bill Isinger. Isinger spent 23 years with Times Mirror, seven of them as senior financial officer of The Times, before becoming Downing's assistant in 1998. He left the paper about six months later.
Isinger says that Willes and Downing were initially welcomed by other Times executives who were enthusiastic about his commitment to the community and to journalism and about many of the changes they both wanted to make. "But it began to unravel and deteriorate as people got a greater sense of how they ran the day-to-day business," Isinger says. "They had no newspaper experience, and while that can be healthy--you bring in new, outside ideas, you're not chained to the previous ways of doing things--they have a certain hubris about it. They don't take any counsel. They thought they could drive the paper where it should go without knowing anything of the traditions of the newspaper business. Willes often said, 'Business is business.' They didn't realize that newspapers are different."
Interviews with several other former Times executives yielded an identical theme. Schlosberg said that although he had never worked with Downing and had "sometimes" been able to change Willes' mind on various issues when the two worked together, a number of the departed executives had told him that her management style didn't seem to welcome a "loyal opposition."
Former Times executives also noted that there had been a significant exodus of high-level executives shortly after Downing took over as president and chief executive of Matthew Bender, a legal publishing company then owned by Times Mirror, in 1995; two years later, after she became chief executive of the combined companies of Matthew Bender and Mosby Inc., 16 of Mosby's top 19 executives left the merged company.
Result of Inexperience
Downing says that most of those departures are attributable to "personal and personnel-related reasons," to "allegiance to the former CEO" [whom she replaced] and to "redundancy"--when two companies merge, several jobs suddenly exist in duplicate and one can often be eliminated.
Derrick Holman, a vice president under Downing at the merged Mosby Matthew Bender, says Mosby was "not in a great state" when Downing arrived, "and the people who got it there needed to go." Like several others who worked directly for Downing before she came to Times Mirror, Holman flatly rejects the charge that she is autocratic and unwilling to listen to opposing views.
Barbara DeYoung, who worked with and for Downing at three companies over 10 years, says, "Anyone who gets to the top has a vision. "People in those positions tend to be people of strong opinions, and I would think one would want them to be. The difference between working with Kathryn and others of that same temperament is that Kathryn has always brought people together to contribute input."
DeYoung, now general manager of an online division at a legal research firm, says that she often saw Downing change her mind because of others' suggestions. If Downing were hostile to challenges from subordinates, she says, "I've certainly been in a couple of situations with her here. . . . I would have been gone."
So why has Downing been perceived so differently by many people at The Times? It may well be because she is so new to newspapers, and newspaper people are very different from the businesses and people she's been associated with before.
Several present and former Times and Times Mirror executives, using strikingly similar language, said that Downing is often certain that she is right, despite her inexperience in newspapers; without more experienced hands willing to challenge her, they say, a blunder like the Staples deal was inevitable. Indeed, Willes said to reporters shortly after the controversy broke, what happened in the Staples affair was "exactly a consequence of having people in the publisher's job who don't have experience in newspapers . . . If you don't have people with experience, you'll have people who don't understand the issues until they're made to understand the issues. That's why we need more conversation" between the business and editorial departments at the newspaper. (A poll published this month in Editor & Publisher magazine found that 75% of the publishers surveyed "strongly agreed" or "somewhat agreed" that "People entering newspaper publishing from other businesses lack an understanding of editorial ethics.")
Downing doesn't minimize her lack of newspaper experience. She is obviously intelligent, and Willes says that she is "more of a learner than almost any executive I've worked with."
But Downing says that she doesn't understand "this need to hang somebody because they're on the learning curve," and she says she can't believe that every journalist "knew all the right things to be a really good journalist . . . their very first day on the job. I believe you cannot find a person in the newsroom who hasn't made a mistake or 10 or 20 along the way."
Downing is right, of course. And Editor Michael Parks points out that while journalists do tend to have values that "would not be natural in a business environment," he thinks that people who join newspapers from business and other non-journalistic arenas can develop those values and "come to love journalism and what newspapers do, the role they play in society." Journalists, he says, are not born but shaped by their families, their schooling and their life experience.
Many journalists seem convinced, however, that there is something inside them that makes them journalists.
"You're not turned into a journalist, you pop out that way. It's in your veins," says Aaron Curtiss, former editorial page editor of The Times edition in the San Fernando Valley who is now working in advertising at the paper as part of a new program to teach people about different departments.
That may sound a bit romantic, but even so, rookie reporters or even veteran reporters do not put stories in the paper. Editors do. On occasion, of course, a reporter can fool an editor--or all the editors--as Janet Cooke did at the Washington Post in 1981 with her Page 1 story on "Jimmy," an 8- year-old heroin addict who turned out to be nonexistent, a figment of her imagination. Acts like Cooke's are rare, though, and she did it only once. Then she was fired. The vast majority of the time, a reporter who makes a mistake--intentionally or inadvertently, on his first day or in his first month or his first year or later--has several layers of experienced editors between him and publication. A rookie publisher has no such safety net. The publisher is the final decision-maker. On-the-job training is risky when the trainee is the boss. But the boss usually has more job security.
Nevertheless, Downing clearly resents the suggestion that she is hostile to dissenters and that the Staples fiasco might have been averted if several experienced newspaper people on the business side hadn't left.
"The . . . premise that somehow the senior team is not flush with newspaper experience simply isn't accurate," she says, and she ticks off the experience of several members of that team. Moreover, she says: "The people who are on my team are willing to stand up and be counted."
Did the members of that business-side team know about the profit-sharing agreement?
"You'll have to ask them, but my assumption is they all knew," she says.
Apparently, none of them told her it was a mistake.
CHAPTER TWO / The Debate
The signing ceremony for the founding partner agreement between The Times and the L.A. Arena Co. took place Dec. 17, 1998, at Staples Center's temporary offices on the 23rd floor of a building overlooking the center, which was still under construction. Soon, discussions at the paper were proceeding along several separate tracks.
Completely independent of the founding partner negotiations--indeed, initially unaware of them--Sports Editor Bill Dwyre and his top assistant, Rick Jaffe, had already begun talking about how the paper should cover the opening of a big, new arena downtown. Now, with the contract signed, the business side of the paper started discussing how to fulfill the profit-sharing obligation.
Mark Sande was probably the key player for The Times in those early discussions. Many critics accused Willes of wanting the general managers to function as business executives in the newsroom, telling editors what stories to run and which ones to kill and how to cut costs and curry favor with advertisers. But that wasn't what Willes intended nor what Sande did. Every day, Willes had said, the editor of each section of the paper comes to work determined to make that section the best he can journalistically; why not have one person on the business side equally determined to maximize the commercial potential of each section. That was Sande's job, and Dwyre quickly came to like and respect him.
"He was protective of editorial integrity," Dwyre says. "He blocked any intruders [from the business departments of the paper]. He felt like part of the team."
'A Great Deal'
Apparently, some people in the advertising department weren't very happy about that. They didn't consider him a team player, and on Feb. 16, Sande says, he was told he was "difficult to get along with" and therefore would no longer be general manager of the section. He was offered another job but chose to leave instead.
Now, some people at the paper seem to want to make Sande the scapegoat for the debacle that ensued. They say that he made a bad deal with Staples to begin with and then compounded that by suggesting that the Los Angeles Times Magazine be used for the profit-sharing venture.
Downing is not among those who blames him. On Oct. 14, 1998, two months before the founding partner contract was signed, Downing sent a fax to Willes, who was out of town, telling him that the paper had "agreed in principle to be a founding partner" and praising Sande for having negotiated "a great deal." She repeated that praise in a recent interview. Leiweke goes even further. "Mark Sande made the best sponsorship deal anybody made," he says.
Moreover, Sande denies having wanted to use the Sunday magazine for the Staples profit-sharing. "I wanted either a commemorative book or a glossy, stand-alone magazine, produced by sports, separate from the regular Sunday magazine," he says. Dwyre and Jaffe back him up. "His job was to get revenue for the section," Dwyre says. "He wouldn't get credit for revenue in the magazine."
Opposition to Magazine
But it almost doesn't matter what Sande did or didn't want or did or didn't do. He and others involved in the discussions say that he was out of the loop on Staples decision-making as of Feb. 16, and it's clear from memos written after that and from interviews conducted recently that the decision to use the magazine to satisfy the Staples commitment wasn't made until more than a month later. Until then, two other options were still on the table:
* Sande's "glossy, stand-alone" magazine, to be produced largely by the sports department.
* An advertorial section.
At first, all the key business executives were opposed to using the Sunday magazine. Sunday magazines in newspapers are a troubled, often money-losing lot. The Miami Herald and Denver Post pulled the plug on their magazines last year, and at least 10 others have folded since 1990. The Los Angeles Times magazine loses $4 million to $5 million a year, an average of about $100,000 an issue, and Holly Bowyer, then the magazine's general manager, was one of many who initially didn't think the sales force could sell enough advertising to make it worthwhile (though she later became a strong proponent of doing a Staples issue of the magazine).
James Helin, senior vice president and chief marketing officer of The Times, says John McKeon, the advertising boss, pointed out that to give Staples $300,000, "we'd have to make $600,000. That's a lot. He said, 'Let's just cut them a check and ship them the money.' " McKeon says that he doesn't specifically recall making that statement, "but it sounds like me." The whole point of the profit-sharing agreement, though, was to reduce the amount of out-of-pocket cash The Times had to pay. The paper was contractually committed to pursue " joint revenue opportunities." Cutting a check for Staples wasn't an option.
McKeon says he now wishes he could say he objected to the profit-sharing concept on ethical grounds, but he acknowledges that his only objections at the time were economic. He didn't think the magazine would be profitable enough to fulfill the $300,000 commitment, and even if it were, he didn't want to give away half the profits.
CHAPTER THREE / The Meeting
At 5 p.m. on March 4, Tims senior vice presidents James Helin and John McKeon conducted a meeting in McKeon's seventh-floor office in an effort to reach some decisions. One or two other men from the business side were also there, as were, these participants say, Managing Editors John Lindsay and John Arthur. Arthur remembers being there; Lindsay says that he was focused on another of his duties at the time--supervising the redesign of the paper--and can't specifically recall such a meeting. But he says others have told him he was at a meeting about Staples coverage "some time in March, and I assume that's true." Most of the other participants remember his presence--and his protests--at this one.
What was talked about at that meeting? That's obviously a critical question, and that's where things get sticky. All the participants say there was no printed agenda, and there are no minutes of the meeting. But Helin says that profit-sharing was "mentioned very clearly and openly." That, after all, was one of the main purposes of the meeting as far as the business side was concerned: to determine which of the various publishing alternatives would best satisfy the commitment to Staples. McKeon agrees . . . sort of.
"I can't tell you that I'd put my hand on a stack of Bibles and swear to you that that happened," he says. But he thinks it probably did come up because he recalls asking Helin, " 'What are we responsible for?' That's where $300,000 came up."
Inattention to Details
Most participants agree that copies of the 23-page founding partners agreement, with its clause about "joint revenue opportunities" were either available or handed out at the meeting. Arthur says that he doesn't recall seeing the contract. Lindsay says that he remembers receiving it but didn't look at it. "I don't pay much attention to the details of a business contract," he says, "because I don't work on the business side."
That would conform with Willes' analysis of how the whole Staples imbroglio unfolded--that it was accidental, not intentional, and that "the very nature of most accidents is that people weren't paying attention, not that they're bad people"
But Lindsay and Arthur insist that there was no mention in their presence of sharing profits with the Staples Center, and both say that if it had been mentioned, they would have objected immediately and strongly. Arthur says that profit-sharing wasn't mentioned at all. Lindsay says there may have been discussion of some kind of profit-sharing agreement but, "It was very vague. . . . It was never attached that specifically" to the magazine, and in any event, "We never got to that point."
Why not? Because, Lindsay says, everyone at the meeting seemed to agree that the magazine was not the proper venue for coverage of the Staples Center opening. That did seem to be the general, if unsettled, consensus.
Arthur knew that the sports staff was already working on a list of story ideas for a special Staples Center section, similar to supplemental sections the department does 20 or so times a year for such events as the Super Bowl, various golf tournaments and the opening of the major league baseball and professional basketball, football and hockey seasons. He didn't know what form this particular section would take--a newsprint "broadsheet" the size of the regular section or a glossy, magazine-style section--but whichever it was, he preferred letting sports do it, independent of the regular Sunday magazine.
Lindsay opposed use of the Sunday magazine even more fiercely, in part because he didn't think the opening of Staples Center warranted a full issue of the magazine and in part because readers of the magazine are primarily women; a magazine about a sports arena figured to draw a primarily male readership. Lindsay says he also pointed out that The Times was a founding partner of Staples Center, and that if the paper was going to do anything, it should be "a special advertising section. . . . You should not do an editorial section on a business partner."
None of the other participants in this meeting recall Lindsay making that argument, but all do remember Lindsay's adamant opposition on several occasions to devoting an issue of the Sunday magazine to Staples Center. Lindsay has his critics, but Editor Parks and others agree that he has long been an outspoken defender of editorial prerogatives.
"John Lindsay's antennae are always out," says Narda Zacchino, associate editor of The Times, who was Lindsay's direct supervisor from 1990 to 1997. "He can sense any possible conflict of interest situations. He calls them to the attention of senior editors."
Commitment Was Set
So what was the outcome of the March 4 meeting?
Lindsay says he came away convinced that the magazine had been ruled out for Staples coverage, that there would be no editorial section of any kind. McKeon says he came away convinced that if the sports department was determined to do a special section on Staples Center, it would be foolish to also do an advertorial section. The two would compete with each other for advertising to the probable detriment of both financially. McKeon also didn't like the idea of two separate magazines on the same Sunday--the regular magazine and a Staples stand-alone special. They would also compete with each other for limited advertising dollars.
Lindsay offered to suspend publication of the regular magazine that Sunday to avoid any conflict; the magazine already "went dark" on several holiday weekends when advertising was light, so this would not be unprecedented. McKeon had been at The Times only about four months then, though, and he wanted to improve the fortunes of the magazine, not diminish them; he wasn't eager to have it skip publication one week. He wasn't certain what he did want to do yet, he says, but other participants say that he seemed inclined to join Lindsay and Arthur in opposition to using the magazine for Staples. Helin felt the same way.
Profit-sharing? All the business people present say they thought it had been mentioned and no editorial opposition had been raised. Is it possible that the business people so took the profit-sharing agreement for granted, and assumed their editorial counterparts already knew about it and had no objection, that they didn't specifically mention it at that meeting? Is it possible that, with the contracts available for all to see, profit-sharing was mentioned only briefly and in a kind of offhand shorthand that, as Helin suggests, "didn't ring a bell in the context" with editors who were preoccupied by other concerns and convinced that the magazine wouldn't be involved anyway? Even Arthur concedes that's possible.
"We didn't debate it," Helin says. "The $300,000 commitment was set; the editorial focus was on positioning--where to do the Staples coverage."
A Different Focus
Sean Riley, who also attended the meeting, having taken over as general manager of the magazine, thinks this is a likely scenario. Lindsay is so committed to defending the editorial department against business intrusions, and was so opposed to devoting an entire issue of the magazine to the Staples Center, that if the profit-sharing arrangement had registered with him, Riley says, "It would have been his trump card."
But is it really possible that something so volatile and damaging as sharing profits on an editorial section of the paper with the subject of that section's coverage was mentioned and just "didn't register"?
Yes, says Dick Stanton, the paper's chief operating officer. He was not at that March 4 meeting and doesn't profess to know anything about it, but speaking of other meetings he's attended with editors, he says, "The Times has a renowned editorial department in part because it focuses on editorial. People in editorial don't focus much on the business side. They are very smart people, but this is not what they focus on."
CHAPTER FOUR / The Decision
Eleven days after the March 4 meeting, the questions of how to cover the Staples Center opening and how to fulfill the revenue-sharing agreement were still unresolved. In a memo dated March 15 and addressed to James Helin and John McKeon, Kelly Sole, who had taken over from Sande as general manager for the Sports section, said the three original options were still under consideration. She recommended either the stand-alone magazine or an advertorial section, not the Los Angeles Times Magazine.
She did not have the final say, though, and in the next two weeks, sentiment shifted. Some on the business side argued that a special issue of the magazine on Staples Center wasn't much different from the special issue the magazine had published in December 1997 to mark the opening of the Getty Center museum, and that issue had been quite successful, with enough advertising to publish a 92-page issue.
But John Lindsay, John Arthur, Alice Short, the magazine editor, and several of her subordinates remained opposed. Getty and Staples were very different, they argued. The museum was a nonprofit cultural institution of international significance; Staples Center was a profit-making arena of largely local interest.
"It was bad idea," says Bob Sipchen, a senior editor at the magazine. "I thought it had a funny smell to it from the very beginning. . . . This was a train wreck waiting to happen."
Seeking a Plan
But Editor Michael Parks, who originally favored letting the sports section handle the Staples Center coverage, says he came to realize that the opening of the arena was not just a sports story. "Clearly we needed a coherent plan," he says. "After talking to many people, I decided Staples Center was an important event in the renaissance of downtown Los Angeles," and the best way to cover that was to "do it all in one place . . . in the magazine. Effectively, I overruled John Lindsay."
Was Parks aware that The Times was a founding partner of Staples Center? Yes. And Lindsay had told him he didn't think the paper should "do an editorial section on a business partner."
But Parks says that he had heard nothing about profit-sharing at that time, and he thought " 'founding partnership' . . . was just a fancy rubric for what was a fairly straightforward, customary, promotional relationship for the paper. . . . My understanding of being a founding partner was [that] . . . we pay them to put up signs, we pay them to sell the paper there, and we paid them for [a suite], not that we were sharing revenue. . . . Had I a full and correct understanding of the relationship . . . we wouldn't have done it, and I would certainly have told the publisher and the CEO that the relationship with Staples posed huge problems for the newsroom because it put into question the paper's editorial integrity."
Did Parks look at the contract? He says that he didn't. At one point in the early discussions, he says, people on the business side said they "felt obligated to do a souvenir book as part of a written agreement," and he asked Helin what the agreement said.
"Helin said he'd find it and get back to me," Parks says. "I don't recall his ever getting back to me."
Helin says he has "no recall whatsoever" of the request. "In fact," he says, "I have a recall that would say I didn't have that conversation with him. It doesn't make sense to me." On the other hand, Helin concedes, "Maybe I don't remember the conversation now because I didn't remember it then."
Folow-Up --Or Not?
Did Parks follow up with Helin? He says that he didn't. In fact, to this day, even after all the controversy about the profit-sharing arrangement, Parks says he still hasn't looked at the contract. "I think it's better that editorial independence be asserted," he says. "They don't read our stories. I don't read their contracts."
Once Parks made the decision to devote an entire issue of the Sunday magazine to Staples Center, the business side swung into action. A meeting was scheduled for 2 p.m., March 30, in a fifth floor conference room to map strategy for the issue. The agenda for that meeting lists "Up to $300,000 revenue share commitment to Staples Center at net (i.e., profits after expenses)." The names of "required attendees" for that meeting is listed on Page 2 of the agenda. All seven names are from the business side of the paper; no one from editorial was invited or present, even though "content ideas and recommendations" is the first item on the agenda and at least two other editorial matters are also included.
But the sports and advertising departments had been in communication with each other since before the magazine decision was made. On March 9, Rick Jaffe, the executive sports editor, had sent Sheri Wish, who was leading the advertising sales effort, a "tentative Staples plan"--a list of more than 20 stories under consideration for the sports department's contribution to whatever kind of section was ultimately produced; the list included the names of the reporters expected to do the stories. Jaffe subsequently sent a similar, updated list to Sole.
Newspaper advertising departments often clamor for such lists; they say it makes it easier for them to sell ads. But most editors strenuously resist these requests as improper intrusion; advertisers may be told the general content of a given issue or section, but editors say they have no right to know what specific stories will appear, and they certainly shouldn't be told who the reporters are. The risk of interference is too great. Why did Jaffe send his list to advertising? In the spirit of cooperation. Besides, he says, the lineup of stories and their authors changed considerably before the issue was published.
Selecting a Writer
The metropolitan news department of The Times wasn't particularly interested in cooperating with the magazine, though. One of the stories that the magazine editors had in mind for their Staples issue was an examination of what impact sports arenas in other cities had had on their downtowns. They wanted someone from the paper's metropolitan staff to write it.
"I objected very strongly," says Bill Boyarsky, the city editor. "They tol