• by Erik Sass  @eriksass1, April 5, 2007

Chicago real estate mogul and billionaire Sam Zell appears not to be planning staff cuts at the Tribune Company, according to remarks made during an interview with Chicago Tribune reporters and executives on Wednesday. Zell also noted that "we're going to do an ESOP here," vowing "I'm going to be responsible to all those employees." But a closer look at the interview reveals a far more ambiguous picture--that of a canny, press-savvy billionaire who managed to duck the main issues.

Indeed, Zell deflected the first question about job cuts with one of his own: "The $64,000 question is, 'How do we up the revenue?'" While acknowledging that content is key, Zell focused on "editorial excellence" rather than staff levels. Zell also took pains to distance himself from executive decisions regarding staff cuts. Explaining his mission, Zell implied they were not his concern: "My focus is not to look at this thing ... I don't know anything about job cuts. I don't, and I think that's all in the realm of the CEO."

Ken Doctor, an independent newspaper analyst with Outsell, Inc., read between the lines. He suggests that the Zell deal actually "accelerates the chances of deeper layoffs and reorganization of newsrooms." Doctor recalled that a number of the Tribune papers have already endured newsroom cutbacks, even before the sale was announced. Asked what areas Zell might focus on, Doctor said: "The most expensive part of newsroom reporting is investigative reporting, which is also the hardest to prove-out on an economic basis. That's the most endangered at Tribune and across the American newspaper landscape."

Indeed, one of the most telling moments in the interview came when Zell discussed the recent history of the Los Angeles Times, where editor Dean Baquet refused to cut the newsroom staff, as Tribune's corporate bosses had ordered. Asked if such insubordination is ever appropriate, Zell answered simply: "No... You can play or you can go work for somebody else."

Speaking of the newspaper business generally, Zell hinted at a certain degree of ignorance--or at least agnosticism--about its viability in the face of Internet competition: "The question: 'is it a 5-11 alarm fire or is it a brush fire?' If it's a 5-11 fire we're in big trouble."

Meanwhile, under the terms of the deal, Zell won't see any profit unless Tribune's performance improves substantially in the next couple of years. "I'm putting $315 million into this deal, cash. I don't get a nickel return unless the deal is a success to the stockholders," he noted. Most of the risk will be borne by banks and employee stockholders, but given the complex structure of the transaction, Zell could theoretically lose his entire $315 million investment if things go wrong. Doctor remarked: "Given the junk bond ratings of this, there's going to be ever-increasing pressure on every dollar."

Finally, recent precedents aren't encouraging, including layoffs at the Philadelphia Inquirer, instituted by new owner Brian Tierney, a former ad executive. Leading a group of investors, Tierney bought The Philadelphia Inquirer, sister paper Philadelphia Daily News and associated online properties like Philly.com for $562 million in May 2006. After promising an end to the philosophy of "cut, cut, cut for short-term profits" that typified corporate ownership, Tierney cut 68 jobs, or about 17% of the newsroom in January.