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MEDIA: How Screwed Is Robert Decherd?

Overstated circulation numbers, shareholder lawsuits, not one but two subpoenas from the DA—the CEO of Belo is feeling the heat.
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Robert Decherd. Okay, I know the name, but remind me again. Who is this guy?
Decherd’s great-grandfather was George Bannerman Dealey, who founded the Dallas Morning News. Ever heard of Dealey Plaza? That Dealey. Decherd was the co-captain of the football team at St. Mark’s. He was also editor in chief of the school’s paper. Then Harvard, where he became president of the Harvard Crimson. In a book about the News called Fresh Ink, a Harvard friend of Decherd’s said he was “20 going on 35” and “the only one of us who didn’t smoke dope.” He graduated cum laude in 1973 and went to work as a management trainee at the News, where he bided his time until he could oust his Dealey cousins and take control. Remember the Dallas Times Herald? Decherd’s next coup was to help it into its grave. Now the 54-year-old is chairman of the board, president, and CEO of Belo, the company that owns Dallas’ monopoly daily. He’s been listed in Forbes’ America’s Most Powerful People.

Undeniably. His employees have two nicknames for him: Darth Vader, because he built a downtown high-rise they call the Belo Death Star; and Howard Hughes, because he’s unapproachable. To them, he seems to have locked himself away in his office, where he frets over his media empire and where he is said to eat the same lunch every single day.

And he’s screwed because of that circulation thing?
Well, pulling just from recent memory, there was the disastrous—and expensive—newspaper war with the Star-Telegram in Tarrant County; the aborted millennium festival at Fair Park, called “The Turn,” which cost the paper only $1.7 million but sucked dry its marketing juice; the failed CueCat, which cost about $40 million; the launch and subsequent dismantling of TXCN; and the layoffs last year, largely from the News, of about 250 people. None of those events is exactly a bright spot on Decherd’s 10-K. But, yeah, the circulation thing looks pretty bad.

How many newspapers, exactly, are we talking about?
We’re talking approximately 50,000 papers daily and 100,000 papers on Sunday. That’s how many fewer papers, on average, the News distributed every day during the six-month period ended March 31, 2005, as compared to what it claimed it was distributing a year ago. For those keeping score at home, that means its daily circ now stands at 476,397 (down 9.8 percent), and its Sunday circ is 654,374 (down 13.2 percent). But it’s nearly impossible to tell how much of that drop is due to people not buying newspapers and how much is due to other people lying about people buying newspapers. It gets complicated. Decherd admitted in August 2004 that the News had inflated its weekly circulation figure by 1.5 percent and its Sunday figure by 5 percent for the six-month period ended September 2003. You can’t say how the ’03 fudge affected the ’05 drop because the Audit Bureau of Circulations threw out the ’04 numbers in between, which makes comparison impossible. The Audit Bureau said the News’ paperwork was too unreliable. Maybe the auditors in the DA’s office will give it another shot (but more on that later).

Advertisers can’t be happy about those numbers.
You got that right. Because advertising rates are tied to circulation figures. And what a newspaper executive calls a “circulation overstatement,” an advertiser might call a “bald-faced lie.” After Decherd copped to the bad numbers, he had his sales staff contact more than 2,000 advertising clients to apologize for the exaggeration. Then he started handing out money. According to its quarterly report issued in August of this year, the paper so far has forked over $19.6 million in cash to its clients. Throw in $3.9 million in related costs, about $11 million in advertising credits, and the scandal has cost Decherd’s company nearly $35 million.

So what’s the problem? Coughing up $35 million is no fun, but that’s basically just another CueCat hairball. Belo is a big company. They can take it.
Sure, Belo is a Fortune 1000 corporation. It owns 19 television stations and four newspapers. It generates $1.5 billion in revenues. But the News accounts for one-third of those revenues. It’s the goose that lays the golden egg (but more recently, sigh, the eggs). It’s also Great-Grandfather’s legacy. So this is about more than just money. This is about Decherd’s heritage, about the continued independence of his company—and maybe his personal freedom. The man could go to jail.

Golly, talk about an “overstatement.” Isn’t that a little melodramatic? Decherd’s not going to jail.
True, there’s not much chance of that. But what chance there is must have Decherd plenty worried. Just two months before he fessed up to his paper’s problems, Newsday did the same. A year later, in June of this year, some of those Newsday executives were arrested.

Is it fair to compare the News’ circ scandal to Newsday’s?
The Newsday scheme was pretty egregious, involving not just fudged numbers but kickbacks and sham corporations and all sorts of villainy. By contrast, according to the News’ internal investigation, its problems stemmed from a corporate culture that fostered, um, a lack of candor. Underlings seemed to have a hard time telling the truth to their bosses up the corporate ladder, one of which may have been Decherd himself. When those bosses set lofty (read: impossible) goals for circulation, circ managers did their darndest to reach them. For an extra boost, they began offering lavish incentives to the outside contractors who deliver the papers. In addition to those carrots, they also started swinging a big stick. In 1999, the News stopped giving credits for unsold copies. So what happened was, delivery people stopped reporting that papers hadn’t been sold. They threw them in dumpsters; they threw them in yards of people who hadn’t asked for them; they did whatever it took to meet their quotas. So, yeah, not quite the same situation as Newsday’s. But some might say the consequences were as predictable.

And as long as we’re making comparisons, it’s worth noting that Newsday addressed its circ problems in its own pages. The paper appointed a team of reporters to explain what happened. In fact, the arrests that followed are credited to the work done by Newsday’s own reporters. The News, on the other hand, has mainly kept its readers in the dark. For the full story, Dallas readers had to turn to the New York Times and online outlets.

Sources say that News editors wanted to follow Newsday’s example by assigning their own reporters. Decherd is said to have put the kibosh on that idea. (A spokesperson declined to comment.)

Whatever. That’s just inside media stuff. And so what if contractors ditched papers to win trips to Cancun? Decherd hasn’t done anything illegal.
Hasn’t he? He and publisher Jim Moroney have hired criminal defense attorneys, which in itself may mean nothing more than that they are prudent men. Their reason for prudence, however, is that the SEC has been knocking on Belo’s door. Was it puffery or was it stock fraud? Just as ominously, District Attorney Bill Hill has subpoenaed the paper—twice, in April and July—for documents he is presenting to a Dallas grand jury. Each grand jury is impaneled for three months; we hear the DA expects to use three of them. An elected DA doesn’t go after the monopoly newspaper in his hometown because he wants good publicity.

Okay, smarty pants, what exactly are the grand juries looking at then?
Grand jury proceedings are confidential, so we’re only guessing. But a class-action lawsuit filed by shareholders revealed that a 15-year contractor secretly recorded conversations with his supervisors in which they told him to lie about how many papers he’d sold. In January 2003, the man wrote a letter to Decherd and included one of a dozen such tapes he had. The man claims that Belo’s general counsel and other officials contacted him and “begged the distributor to turn over the tape recordings of voice mails and conversations containing damning evidence.” The man said he lost his job in December 2004.

But didn’t Decherd explain that whole secret-tape affair?
Yes. In a letter he wrote to his employees in May, he said that he immediately turned over the tape to Belo’s legal department. The legal and human resources departments launched a month-long investigation that, Decherd said, determined the whole thing was an isolated incident. Several circ managers were fired, and that was that.

Remember, though, that a year and a half after the secret-tape affair, Decherd announced that the paper had overstated its circulation because, essentially, the secret-tape affair wasn’t an isolated incident. If managers weren’t directly telling contractors to lie, they were fostering a corporate culture that rewarded lying.

But does that mean fraud?
Hang on. In that same letter to his employees, Decherd said the contractor worked in an “area outside the Dallas metropolitan market.” Did he perhaps mean Tarrant County? New information may show big problems for Belo in Tarrant County. For years, the News engaged in an ugly war with the Star-Telegram in the Tarrant theater of operations. If supervisors were going to tell distributors to lie about how many papers they were selling, that’s a logical place to have done it.

In May 2005, the Audit Bureau released its first full post-scandal audit of the News. In March 2003, the News was purportedly distributing 61,721 papers every Sunday in Tarrant. The new audit put that same number for March 2005 at 36,097—a decline of 41.52 percent. If it’s a correction, that’s a whopping “overstatement.” And it happened in a very expensive battle zone, an area that Decherd and the Belo board must have been watching carefully.

There are two possible explanations for such a large decline in circulation. The Innocent Explanation is that 2003 was the tail end of a losing effort, and, after suffering an ignominious (and wildly expensive) defeat, Belo cut back on promotion. As a result, its circulation—theretofore artificially pumped—precipitously declined.

The Less Than Innocent Explanation is that in its fierce competition against the Star-Telegram, Belo lied through its teeth to potential advertisers. To throw off outside auditors, it created a false paper trail, much as it did in Dallas. Once the Audit Bureau decided to blow the whistle, the paper trail went up in smoke—and what’s left under the pile of ashes is evidence of a crime.

If I were on a grand jury, the new Tarrant numbers would make me very suspicious. I might ask to see Belo board minutes and all executive memoranda about that little newspaper war in Tarrant County, going back at least eight, possibly 10 years.

But say they can explain that one. Bottom-line it for me. You promised to tell me how screwed Robert Decherd is.
Okay, well, in 2004, 15 of Belo’s 25 operating units reported record revenues. And Belo’s stock price outperformed its peer company index for the fourth consecutive year. Decherd himself pocketed more than $2.2 million in total compensation, and at $24 a share, Belo’s stock price at press time, his holdings in the company are worth about $129 million. And, of course, he’s George Bannerman Dealey’s great-grandson, with a seemingly unassailable position in class A stock.

So on a scale of screwedness where 10 is “irreparably, horrendously screwed to the point where they won’t even give you a reality TV show if you begged” and 1 is “screwed just slightly, so that you might only miss your tee time at Augusta,” Decherd is probably a 2.

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