The Setting Sun-Times

Feisty and muckraking, the Chicago Sun-Times is also losing readers, advertisers, and money

Erstwhile press baron Conrad M. Black and his sidekick, ex-publisher F. David Radler, now sit behind bars, guilty of looting millions of dollars from the company that owns the Chicago Sun-Times. But at the hard-pressed tabloid, which on their watch perpetrated, fell victim to, and uncovered scandals alike, the duo's real crime may still be unfolding: Does murdering a newspaper break any laws? Sure, a downsized version of the Bright One still comes out every day, and investment banker Lazard may yet find a buyer for it.

But salvation looks dicey for the battered bunch at Sun-Times Media Group (SVN). Between punishing layoffs, a downward spiral in readership and revenue, and management turmoil that has turned STMG into a financial basket case, the paper's future seems anything but bright. STMG's shares dipped so low—the $20 stock shriveled below $1 a share in three years—that the New York Stock Exchange pulled them from floor trading in February.

"They are in such a terrible nosedive that I just don't see how they pull out of it," says Michael Gillis, a 22-year newsroom veteran who left in January. "I hope I'm wrong."

Unless something breaks the paper's way—a deep-pocketed rescuer interested more in influence than in profits, perhaps—it's hard to see how the Sun-Times will be around much past its 61st birthday next year. There are no plans to fold the paper, a spokeswoman says, adding its $142.5 million in cash on hand could help keep it alive for years. But the signs are troubling. "You can't cut your way to success," says independent newspaper analyst John Morton of Morton Research, noting waves of trims, such as the roughly 20% cut in January that brought the newsroom staff down to about 182. "Clearly, time is running out."

Much ink has been spilled on the decline of newspapers in general and on the humbling of the Chicago Tribune, now controlled by billionaire Samuel Zell. The Sun-Times' long and seemingly terminal slide is a more poignant tragedy, however. Black and Radler are the chief culprits, thanks to penny-pinching and theft. They presided, too, as a circulation scam mushroomed. And they proved unable to lure new readers as their urban working-class base slid, or to halt advertiser flight to the Net. But current managers have done little to fix what they inherited. Former editor James F. Hoge Jr., who now edits Foreign Affairs, calls the recently redesigned publication "a thin and hollow paper."

The truth is, though, that the Sun-Times' glory days passed long ago as ownership repeatedly changed hands, from the heirs of Marshall Field III to Rupert Murdoch in 1983, to New York's Adler & Shaykin investor group in 1986, and to Black and Radler in 1994.

Under the Fields, the paper spent freely to give readers a lively, liberal, and hard-hitting alternative to the stodgy, Republican Trib. In 1977, for instance, the Sun-Times shelled out enough money to open its own tavern—the cheekily named Mirage—for four months so its undercover reporters could snare city officials seeking bribes. The home of columnists Mike Royko and Eppie Lederer, aka Ann Landers, the Sun-Times was "a very serious newspaper," recalls former managing editor Gregory E. Favre, now a fellow at the Poynter Institute, a Florida journalism school.

The paper racked up seven Pulitzer Prizes from 1970 to 1989 for two-fisted local news coverage, photography, and criticism, including work by filmdom's Roger Ebert and cartoonist Jack Higgins. "The Sun-Times was never The New York Times of the Midwest, but it wasn't boring," says novelist Shane Gericke, a lifelong reader of the tabloid and an editor there from 1982 to 1994.

But under Black and Radler, who spent $180 million for the Sun-Times and a string of suburban papers, the daily became a stingy place where managers infamously shut off an oft-used escalator to save money. "We used to joke that it was the Sun-Times' exercise plan," recalls Lewis "Chris" Whitehead, a copy editor who worked there from 1979 until January. Repeated layoffs have cut the paper's bench, shrinking a news staff that topped 300 in the late 1970s.

If there was a tipping point, it came in 2001. Hollinger International, the Black-controlled outfit that also owned Canada's National Post, London's The Daily Telegraph, and scores of other papers, was feeling strained. The company, later renamed Sun-Times Media Group, lost $326.6 million on $1.2 billion in operating revenue that year. The Chicago group, including a bevy of suburban papers, barely stayed in the black.

So Radler wielded the ax. Staff cuts helped boost the group's profit nearly sevenfold in 2002 even as revenue fell. Members of the newsroom union, the Chicago Newspaper Guild, say Sun-Times staffers took unpaid time off to help save jobs. Still, a fifth of newsroom jobs disappeared by 2004, according to one estimate. "It became a roller-coaster kind of ride," recalls Robert H. Mutter, a former Guild official and copy editor who recently left.

The woes didn't stop the wordsmiths from showing lots of spunk. When editors got word, for instance, that the Chicago Tribune was planning in late 2002 to chase after mass-transit riders with a tabloid RedEye edition, they ginned up Red Streak. The sometimes raunchy daily drew on other parts of the Hollinger empire for content and cost the Sun-Times just about $1 million a year, but it kept the Tribune from charging for RedEye. "They were coming into our territory," recalls former Sun-Times publisher John D. Cruickshank. "We succeeded in changing their notion of what the business model should be."

Sadly for the Sun-Times, victory was fleeting. Unable to afford Red Streak, the Sun-Times killed it in late 2005, and RedEye has since proved devastating. Instead of dropping 50¢ in a Sun-Times box, thousands of "L" riders now get headlines and celeb news for free in RedEye. Tribune distributes over 190,000 copies a day of RedEye, which on some days seems nearly as thick as the Sun-Times.

Tough competition and slim profits haven't been the only problems. As the papers battled for readers in 2003, disaster loomed at Hollinger. New York-based investment group Tweedy, Browne, a shareholder, blew the whistle on Black and Radler. Richard C. Breeden, a former head of the Securities & Exchange Commission (SEC) who had been hired by the board as a special investigator, accused the pair of running "a corporate kleptocracy" that siphoned more than $400 million from Hollinger from 1997 to 2003. The scandal embarrassed directors, notably former Governor James R. Thompson, the audit committee head, who later admitted he only "skimmed" financial reports. By early 2004, Black and Radler were out.

Still, the paper ran investigative work worthy of its feisty past. Case in point: its six-month probe of the so-called Hired Truck Program, which bagged a prestigious George Polk Award for extraordinary journalism. With such headlines as "Paid To Do Nothing," and "Hired Trucks Thrive in Daley's Ward," the reporting drew notice of U.S. Attorney Patrick J. Fitzgerald. His ensuing investigation rattled City Hall and led to convictions of 46 people. One, former City Clerk James J. Laski Jr., took $48,000 in bribes and spent nearly a year in prison. In a memoir, Laski wrote of how in 2004 the "story broke in the Sun-Times that would change my life forever." Fittingly, the Sun-Times excerpted his book.

Even as editors celebrated, Hollinger that year considered dumping the paper. Yusef Jackson, a son of Reverend Jesse Jackson, showed interest, offering $1.2 billion for the full Chicago-area operation at one point, but tax woes helped squash sale plans. Hollinger hived off London Telegraph Group and The Jerusalem Post in 2004, two years after selling its Canadian properties. It shrank into a Chicago-area operation with the Sun-Times as flagship. Jackson says he's no longer interested.

Unseemly doings then surfaced outside the paper's newsroom. For years, company executives admitted, the paper had inflated its circulation. It falsely hiked numbers starting in the late 1990s, the audit committee revealed, and by 2003 was overstating daily circulation by 50,000 copies a day, claiming 482,000. On Sundays, it claimed a circulation of 376,400, some 17,000 more than the true figure. The fakery forced Hollinger to write off $27 million in settlement costs. "People sensed that there was no quick fix," recalls former editorial board member Lloyd Sachs. "The fact that this came on top of all the stuff with Radler and Black, it was like, 'Now what?'"

Ramping up the unease, the paper moved into leased space a few blocks over on the Chicago River. Hollinger sold the paper's home, a rundown place once celebrated as a grand example of the 1950s International Style, to Donald Trump for his hotel and condo tower, netting $44.2 million before taxes on the sale of its half interest in the venture. Ironically, Radler and Trump are now in litigation over a condo Radler bought in a cut-rate deal for early buyers. Trump recently killed such deals, saying all buyers should pay full price.

Barely a month after the last Sun-Times staffers left the old building in late 2004, federal authorities moved on Black and Radler. An SEC complaint said the pair "abused their control of a public company and treated it as their personal piggy bank." The alleged take: $85 million for themselves, other insiders, and their Canadian company.

That was just a warm-up. By summer 2005, a grand jury in Chicago indicted Radler and a colleague for diverting more than $32 million, focusing on gains they reaped by selling their U.S.-based publications. Breaking with his partner of 36 years, Radler pleaded guilty to fraud and helped the feds, later testifying against Black. Black and several colleagues were indicted in November, accused of looting $80 million. And at yearend, prosecutors added charges of racketeering and obstruction of justice against Black, partly because he spirited boxes of documents out of company offices ahead of SEC probers.

Meanwhile, things moved from bad to worse at Hollinger. On an operating basis, the Sun-Times' parent lost $9.9 million in 2005 on revenue of $459.3 million. The operating loss widened to $39 million in 2006, as revenue slid to $420.4 million. And last year, the operating red ink more than tripled, to $140.2 million, as revenue skidded nearly 13%, to $372.3 million. The company turned a net profit of $271.6 million in 2007 only because of a favorable Canadian tax ruling. Shares have now plunged to about 85¢ each.

Managers have seemed helpless to stem circulation declines at the Sun-Times, down at last count in late 2005 to 350,000 daily and 281,000 on Sunday. Ad revenues have dived, dropping 11% last year. Clouding matters further is a tax bill that could approach $600 million, stemming from an IRS audit that is another legacy of the Black years. Last year, it burned through $44 million in cash, making its $142.5 million cushion troublingly thin.

No wonder blood is running on the floors again. Companywide in 2006, STMG slashed its full-time workforce by 10%, then cut more after that. With shareholders pushing for a sale, Chief Executive Gordon A. Paris stepped down in 2006, and the company moved its base to Chicago from New York. Director Cyrus F. Freidheim Jr., now 72, took over as CEO and last fall added the title of Sun-Times publisher when Cruickshank left for a media job in Toronto. Freidheim, derided by Black and a former Sun-Times columnist as a "septuagenarian banana marketer," formerly headed Chiquita Brands International. He declined to comment for this story, as did Black and Radler.

When Black got his comeuppance last year, there was little joy in the newsroom. After a four-month trial, he was convicted in July of mail fraud and obstruction of justice, and he began a 6½-year sentence on March 3. Found guilty of stealing $6.1 million—a far cry from what investigators claimed­—he insists on his innocence and is appealing. Radler, who apologized, paid the company $63 million and on Feb. 25 began serving 29 months. So far, STMG has shelled out $108 million in defense costs for Black and others and is trying to recover more than $60 million. It also has sued Black and others for $542 million.

Still a scourge of the high and mighty, the paper nowadays is partial to shrill headlines and gotcha journalism. It recently badgered Governor Rod R. Blagojevich, for instance, into saying he'll deliver on an ill-advised promise to give $1 million in state money to help the historic Pilgrim Baptist Church, badly burned in 2006. The money had been routed mistakenly to a school that leased space there, as aides fretted about church-and-state separation issues. Less momentously—and with more self-interest—it is laboring to embarrass Tribune CEO Zell with a contest offering $1,000 to a reader who sends in a winning music video attacking his plans to sell naming rights to Tribune-owned Wrigley Field. Its columnists and editorialists alike are in full cry against Zell, whom one bluntly called a "loon."

The paper is wrestling with an industry downturn that recently "moved faster and fell further than anyone in the industry dared imagine," CEO Freidheim said in a Mar. 11 conference call with investors. To help lower annual operating costs by $50 million, the Sun-Times in February outsourced most ad production to an Elgin company. The paper is also an inch smaller now, saving newsprint. And most copies are delivered by Tribune trucks—a prelude, some shareholders hope, probably in vain, for Tribune to buy the paper. "We have accomplished a lot, but we recognize we must do a lot more," Freidheim said on his call, adding that STMG is "working toward profitability" and aims to provide shareholders with a "business as strong as its journalism."

Based on its share price, STMG is worth about $70 million. Abner Kurtin of K Capital Partners, a Boston-based shareholder, figures there's value in its 70 papers outside Chicago, such as the Pioneer Press weeklies and daily SouthtownStar. The Sun-Times alone might fetch between "zero and $50 million," he says, adding that a big-hearted local buyer might fancy it as a "community asset or vanity asset." Of course, Marshall Field III may once have seen the paper that way. The Sun-Times has been poorer for the lack of a backer like him, but the city will be poorer still if the lights go out at the Bright One.

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