With Gatehouse newspaper chain on the hot seat, CEO Mike Reed responds

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A sign for the Las Vegas Review-Journal. (AP Photo/John Locher)
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Ken Doctor

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Several mysteries tumbled out of Sheldon Adelson’s secret $140 million purchase of the Las Vegas Review-Journal in early December (POLITICO: “The new breed of newspaper mogul”). Some have been answered, and others hang in the air. One big one: seller Gatehouse Media’s own journalistic ethics.

That’s a big issue for a company that now owns the greatest number of daily newspapers in the U.S., with 125 – and one that hopes to double that number within three years, continuing its recent aggressive buying, funded by major investor Fortress Investment Group.

Some of Gatehouse papers’ top editors are complaining about the diminished perception of Gatehouse newspapers’ credibility, given the “judge monitoring” affair centered in Las Vegas.

“There’s general angst,” says one Gatehouse insider.

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In fact, the company is planning to gather its editors together soon, and Gatehouse/New Media Investment Corp CEO Mike Reed acknowledged to me in an interview Wednesday that the controversy is on the agenda.

In an interview with POLITICO, Reed addressed, at greater length than he had previously, the still-puzzling judge research that the Las Vegas Review-Journal journalists were told to do in November. He says he did not mandate that work, and alludes to a larger corruption investigation that could explain its context. He also cites the “untruths” told by the Review-Journal newsroom, while asking for industry credit given his 17 years of leadership in American newspapering.

Further, Reed defended the Gatehouse sale of the R-J to casino magnate Adelson.

He also explained the very recent changes at the paper. Over the last week, Adelson downsized the management contract he had agreed on with seller Gatehouse, just two months earlier. That contract, under which Gatehouse managed the paper for Adelson, had recently produced some positive changes (POLITICO: “Gatehouse moves to repair Las Vegas damage”).

Just in the last week, Adelson has appointed his own publisher, and soon his own editor, as he puts his imprint on his new property (“Sheldon Adelson takes full control of the Las Vegas Review-Journal”).

Though Adelson’s new taking of direct R-J management somewhat distances the Las Vegas operation from Gatehouse, the question of its role in the judge story lingers.

The judge-monitoring mystery

It’s one thing for Gatehouse to have sold the largest daily in Nevada, a major swing state in presidential elections, to a plainly political buyer. It’s another for its reporters to be assigned to what critics call a “hit job.”

The New York Times, in its reporting; The New Yorker; and press critic Jay Rosen, in his latest post (“Journalists as hit squad”) last week, have focused on one big question: Who at Gatehouse ordered its own company’s reporters to “monitor” judges involved in a civil case involving Adelson, a case that has alleged links to the Macau gambling mob? One of those judges, Elizabeth Gonzalez, has twice sanctioned Adelson’s legal team for its tactics.

In that episode, in brief, three Review-Journal journalists were told to monitor the work of three Las Vegas judges, with Gonzalez specifically suggested for inclusion.

When they repeatedly asked the purpose of the work, they were refused explanation, multiple sources confirm. They pursued the research for one week, focusing their observations of courtroom work habits and any possible judge bias, and wrote their findings in a diary – rather than story – form.

As the R-J later described the work on Dec. 18:

“None of the 15,000 words the reporters wrote about their time sitting in courtrooms was ever published by the Review-Journal, but days later a long article blasting Gonzalez's rulings in the Las Vegas Sands Corp case appeared in a small Connecticut newspaper with a connection to Adelson that became known only last week.”

It’s unclear what role the research played in the related, false-bylined piece published in that small Connecticut newspaper by Michael Schroeder. Schroeder, himself, later emerged as a bit player in the overall ownership change story, when he first served as a public front man for the transaction.

As facts about the judge monitoring tumbled out, reported by the R-J’s own staff, it surfaced that someone at Gatehouse management had ordered an investigation of the Las Vegas judiciary — but did so without consulting its own newsroom.

Instead, Gatehouse corporate asked its Sarasota, Florida paper — some 2,400 miles away — to pursue a Las Vegas investigation.

David Arkin, who serves as Gatehouse’s senior vice president of content and product development, explained that unusual process this way, when the company issued a statement to its own paper in Las Vegas, when it sought his comment.

Gatehouse was “engaged to tackle an investigative story in Las Vegas with no knowledge of the prospective new buyer [Adelson]. Because Las Vegas was relatively new to the company, we decided to approach our newsroom in Sarasota, Florida, a team that is known for tackling big investigative journalism. On the face of the situation, we had what appeared to be a great story we were capable of investigating, and I wanted our team to show its talent. From my point of view, it was nothing more.”

Bill Church, executive editor of the Gatehouse-owned Sarasota Herald-Tribune, took Arkin’s call, but said “Given what I knew at the time, I said no, we just didn't have the resources, and there were too many questions that still needed to get resolved."

That’s when R-J Publisher Jason Taylor and then-editor Mike Hengel were told to do the judge monitoring, but told nothing about the “great story” later described by Arkin. What was that story? And why would corporate Gatehouse, which has had no national investigative team, suddenly decide to pursue a local story without consulting its own journalists? This week, David Arkin didn’t return contact on those key questions.

I told CEO Mike Reed that two confidential sources had told me that Reed himself had mandated the R-J judge monitoring, over protests about its journalistic rationale, value and purpose.

“No,” he replied. “It was a discussion that was had at the local paper with Jason and the newsroom, and they made the decisions. I would not say I was unaware of the broader investigation. There was no specific mandate that would say, ‘You do it or you are fired.’”

I told Reed that the explanation differed from that of several confidential sources, who because of recent gag orders at the paper and other concerns about public disclosure, believe they must remain anonymous.

Reed defended his own integrity.

“I have been a CEO in the newspaper industry now for 17 years now and not once has my integrity around the business or the newsroom ever been questioned … The 17-year track record should speak for itself, and if there are certain things you can’t comment because of other things, you would hope your track record would speak for itself. If I had a shitty track record, I wouldn’t say that.”

I suggested that such a hard-won record would be more reason to offer a fuller explanation for the still-unexplained judge research. Why not clear his own and the company’s name with a thorough explanation?

“I can’t get into it. Because of different things, we’ve just had to live with it.” Those “different things” may include confidentiality agreements, or other factors. Reed won’t name them.

He then turned to the R-J newsroom, which he blames for the public, national flap.

“Any good newsroom would never comment on an ongoing investigation. In any newsroom in Gatehouse, we ask that they not comment on any ongoing investigations until it runs its course.”

Reed contends, contrary to what journalists in the R-J newsroom have said both publicly and confidentially to me, that there was an “ongoing investigation” of the Las Vegas judiciary.

“I’m on the record in the New York Times saying the investigation was ongoing.”

I told Reed I had talked to a number of journalists at the R-J, who all said the one-week judge review had ended in November.

“A lot of media people have been spun by untruths spun in that newsroom…. Like many things that came out of disgruntled reporters in Las Vegas, there were many untruths.”

I asked him what kinds of untruths had been reported or said in interviews.

“One fact to consider speaks to two things. It is the unfairness of reporters to say they had no idea why an investigation is going on. Completely unfair statement. Part of the background is that the Las Vegas Review-Journal newsroom had done several stories on things that looked out of whack in the business courts [in 2013 and 2014], so the Las Vegas Review-Journal was already reporting on it. Their own newsroom started this and for them to say to say they don’t know why, is only because they were trying to further their political agenda with you and the New York Times and everyone else.”

Reed then alluded to a deeper concern — “corruption” was the word he used — but then stopped himself.

“We did not do anything wrong in Las Vegas. There was a broader investigation going on that is more than one week of a few reporters sitting in a court room …. It was not those three reporters. It was a broader investigation into corruption. That’s more than I should say.”

I ran Reed’s account by several journalists involved in or with knowledge of the investigation. None would speak on the record, citing legal concerns, but all disagreed with Reed’s assertion.

“There was no ongoing judge investigation. One of our columnists had written about a fixer trying to broker a judge election … but that was unrelated to what we were asked to do in the monitoring. There is no connection.”

Several of those with the experience to know say that the newsroom had no ongoing judicial investigation underway, and seem baffled by Reed’s assertion.

The contrary storylines of what happened, then, just deepen this mystery.

If the train of events is more perplexing, the more important question is why the engine was started.

Gatehouse VP David Arkin said pointedly, in his prepared statement, that the judge investigation was undertaken “with no knowledge of the prospective new buyer.” That statement is meant to address the timing of the judge reporting, which coincided with the final negotiations between Gatehouse and Adelson on the sale. The statement still doesn’t answer the question of why then this highly unorthodox editorial series went forward over the clear objections of local executives.

That answer could still come via Gatehouse, or through other sources. Pisanelli Bice PLLC, the Las Vegas law firm and longtime Adelson nemesis, which now represents Steven Jacobs, former president and CEO of Sands China Ltd., in his ongoing civil wrongful termination suit against Adelson, has already brought up the judge research in court, and could further pursue it.

There is one more possibility. If federal authorities believe that there was an attempt to pressure or influence Nevada judges, they may give scrutiny to the why and what of the affair, though Nevada shield laws could make such an inquiry more difficult.

Defending the Sale

Lost in the multiple controversies following the sale is the gating question. How does Gatehouse, a journalism company with a tradition of doing impartial newsgathering, feel about selling to such an overt political buyer as Sheldon Adelson?

“As a CEO of a public company my job is to maximize returns for shareholders,” Reed said. “If I can deploy that $140 million at investment multiples we’ve been paying for properties, then I can create a tremendous amount of value for the company. We’ll be able to expand our portfolio of newspapers tremendously, so it was the right thing to do for the company and the shareholders …. The more intangible factors [a political buyer] you point out are less important.”

Just a couple of years ago, Tribune Publishing decided not to put its newspapers on the market, in part because of the avowed interest of other political buyers, the Koch Brothers.

Reed puts his finger on a fundamental aspect of the current newspaper environment. Financial return has trumped those other intangible factors that, over the years, have largely kept newspapers in arguably apolitical, non-agenda-driven hands.

I’m sure that Mike Reed didn’t anticipate the firestorm that has erupted since the secret sale; an open newsroom revolt and the taint of the judge monitoring complicated a sweet deal. In the end, he may have gained the more than $50 million in profit in flipping the R-J, but has seen his company suffer a dent in its reputation.

Gatehouse and its Distancing from Adelson

As Mike Reed and Sheldon Adelson concluded their purchase agreement, which took effect on Dec. 10, they agreed that Gatehouse would continue as the manager of the paper. While Adelson owned a major daily, Hayom, in Israel, he had no infrastructure in place to run a U.S. daily. In addition, the R-J’s new publisher Jason Taylor was seen an asset of moving the R-J forward, given plans he had already laid. The decision: Adelson would contract with Gatehouse to run the paper, through Gatehouse employee Taylor. Taylor would maintain both his publisher role and his continuing role heading Gatehouse western states 100-plus newspapers and its national events business.

Then, last Thursday, Adelson surprised Taylor and the R-J by announcing a new publisher, who would work directly for, and be paid by, Adelson. Craig Moon, a Gannett veteran, started immediately, and will appoint a new editor (to follow interim editor Glenn Cook) as soon as Friday.

“It was really tough for us to share Jason,” said Reed. “They decided it would be easier for us to have their people in there rather than our people. It’s the right solution for both of our companies. At the time of the sale, both companies were really going into uncharted territories.”

That makes sense as one reason for the unexpected change, yet the parties had only had the agreement in place for about six weeks. Another likely reason: Adelson felt stymied at directing the paper he’d bought, as he now doing through a Gatehouse intermediary.

Suddenly, then, the Gatehouse involvement in Las Vegas has been reduced. Adelson’s News + Media Capital Group, the formal name for the Review-Journal, will continue to benefit from Gatehouse’s greater purchasing power for newsprint and ink. Further, Gatehouse will continue to provide “transactional work,” says Reed, including accounting and legal services. In purchasing newsprint and ink, Adelson’s can benefit from Gatehouse’s buying power. Even that agreement may not last long. “Either party can exit when they want,” says Reed.

Given the whole affair, it would make sense that Gatehouse would want to terminate its Las Vegas partnership as soon as it could.

This affair may die down, or continue to percolate.

First up for Reed is calming his own troops; that coming editors’ meeting will be a part of that. Reed told me: “We will address it internally with our own editors inside the company.”

Then, there’s other discord that may concern Gatehouse investors. Several sources point to a widening gulf between Reed and Kirk Davis, COO and second in command of the company, over the sale, the judge monitoring and the awkward series of events that have followed.

Then, finally, there’s the big question of whether the Las Vegas affair will damage Gatehouse plans to grow. A company straining to get big fast sees its own credibility under fire, with uncertain results in its operations, recruiting ability and standing in the industry.

Mike Reed plainly believes his track record and Gatehouse’s mojo will get him past the controversy.

“I think we are doing more to further local journalism than any other company in the country. The amount of money we’ve invested in building out the design center in Austin, Texas is unquestionably one of the biggest investments any company is making. The training we’re doing should speak for itself. We are trying to be a leader in local journalism.

“We own 125 newspapers today, and I hope in three year, it’s going to be 250. And we’re going to be the shining example of how you create local news, cover local news and the credibility of our newsrooms is important…I would hate to see someone derail that.”