Financial Woes Mount at SF Examiner

The SF Examiner could be on a collision course with financial ruin when the Hearst Corporation's $66 million subsidy runs out in July 2003 ­ or possibly sooner.

According to financial records obtained by the Richmond Review, the newspaper only brought in about $6 million in revenues in 2001, far below its operating expenses of $28 million. Without the more than $2 million a month the Examiner gets from the Hearst Corporation, the newspaper would have lost $22 million last year.

Because the Hearst Corporation has reportedly told the Fang family that it will apply subsidy payments for the second year of the agreement to the first year's expenses to cover cost overruns, the subsidy payments to the Examiner could run out months before July 2003, according to a source who did not want to be identified.

Circulation at the newspaper has dropped from 97,000 a day in 1999 to about 30,000 or less today ­ a precipitous decline in three years.

According to a March 12 article in the Chicago Tribune, a knowledgeable source close to the Fangs says the true daily circulation of the Examiner is about 12,000.

Verified circulation numbers for the Examiner are difficult to obtain since the newspaper voluntarily withdrew from Verified Audit Circulation in mid-2001, according to the SF Purchasing Department.

As well, the distribution count is skewed because merchants who sell the newspaper say the Examiner no longer picks up copies that were not purchased. The merchants pay eight cents per copy for the newspaper, whether they sell or not, and are responsible for recycling all leftover copies.

The last full calendar year the Hearst Corporation published the Examiner, 1999, the newspaper made about $23 million in profits. It made $40 million in profit by splitting $80 million with its Joint Operating Agreement (JOA) partner, the SF Chronicle, less the $17 million cost of operating the editorial department. Distribution and administrative overhead were paid equally by both JOA partners.

Experts testified during the Clint Reilly trial, where he sued to stop the sale of the Chronicle to the Hearst Corporation, that it would take an infusion of $50 million a year for five years for the Examiner to have a shot at making it in the marketplace.

Maximizing the Hearst Subsidy

Fang family members are maximizing their incomes from the Hearst subsidy and co-mingling Examiner monies with other Fang-family-owned businesses.

According to income statements provided to the state, family members on the Examiner's payroll include Ted ($480,000 a year), Douglas ($232,624), Angela ($165,795), and James ($161,538).

According to the agreement between the Hearst Corporation and the Fangs, Examiner funds are supposed to be used only for Examiner expenses. But the Fangs are finding other ways to capitalize on Hearst's money. They include:

· Ted Fang's domestic partner Tony Thompson was hired by the Examiner after the Fang family took over. Thompson was released, due to staff cutbacks, on Sept. 3, 2001.

On Sept. 4 Ted sent an e-mail to the payroll department directing the department to increase his salary by $70,000 a year, the same salary Thompson was reportedly making.

· Recently Florence Fang made arrangements to have the Examiner's archives given to the state for a sizable tax deduction.

A call to the Examiner's accounting department for information about payments to Fang Family Enterprises was not returned as of presstime. It is unknown what payments the Hearst Corporation made to other Fang Family Enterprises, including its consulting, media training and education businesses.

Examiner Editor Ted Fang Fired by Mother

After the Fang family took over control of the Examiner, many key employees quit or were fired from the publication.

A week after launching the publication, Editorial Page Editor Susan Herbert resigned and two weeks later Managing Editor Martha Steffens was fired and replaced by David Burgin, who had served a stint at the Examiner when the Hearst Corporation owned it. Burgin claims he was fired in January 2002 because he would not publish favorable stories about Fang family allies.

According to Burgin, James Fang told him: "We bought this paper for business and politics. I just want five percent of our news coverage devoted to stories that help us ­ help the Fang family."

Before the first year of Fang ownership of the Examiner was over, two editors-in-chief, two marketing directors, a chief financial officer, general manager, managing editor, editorial page editor and vice president of circulation were fired.

In the case of employees who had contracts guaranteeing their employment, it is very difficult to sue the Fangs, even if fired. Provisions put in Fang-family contracts contain a proviso calling for binding arbitration if there is a disagreement between the parties ­ no trial by judge or jury for the resolution of disputes.

Perhaps the most contentious shakeup of personnel at the Examiner came in October 2001, when Florence fired her son Ted as publisher of the Examiner and Independent.

Ted Fang countered by threatening to sue his mother, claiming, among other things, that she was discriminating against him because he is HIV-positive.

As part of Ted Fang's settlement with his mother, he is getting $40,625 a month from Jan. 1, 2002 to July 1, 2003 to be a senior advisor to the "Fang Family Enterprises." The agreement also came with a gag order, prohibiting Fang from talking with any person critical of ExIn about the "competence or honesty" of any Fang Family Enterprise or member of the family.

Fang also gets up to $1 million for his 37-and-a-half shares of Class B stock in ExIn, the corporation created to publish the Examiner.

Fangs Hit "Mother Lode" with Examiner Purchase

The Fang family pulled out all the stops in an effort to get the Examiner from the Hearst Corporation when Hearst was in the process of buying the SF Chronicle for $660 million.

A lawsuit filed by Clint Reilly to halt the Chronicle sale, because he feared the Chronicle was trying to get a newspaper monopoly, stalled the transaction, giving the Fangs enough time to rally political support in their effort to get the Examiner.

Senator Dianne Feinstein, a friend of Florence Fang, arranged a luncheon between herself, Fang and Hearst Editor Timothy White at the downtown restaurant Villa Taverna to discuss the possibility of the Fangs taking over the Examiner.

White testified under oath that he felt if he did not work to assist Fang's requests, Feinstein, a member of the Senate Judiciary Committee responsible for approving the Hearst Corporation's purchase of the Chronicle, would put up road blocks to the sale. The justice department had to approve the deal because the Chronicle and Examiner were partners in a Joint Operating Agreement, a deal that allows parts of the two publications to be produced together and not be in violation of federal Sherman anti-trust laws.

Mayor Willie Brown was also involved, discussing the city's legal advertising contract and the ongoing lawsuit between the Fangs and the Hearst Corporation with SF Examiner Publisher Tim White and making numerous calls on the Fangs' behalf, including several to U.S. Attorney General Janet Reno.

After White reported to his superiors that trouble could be brewing unless an effort was made to sell the Examiner to "keep San Francisco a two newspaper town," the Hearst Corporation negotiated an agreement with Florence Fang ­ the corporation would give assets related to publishing the Examiner and up to $66 million to operate it over 32 months.

As an incentive to save the Hearst Corporation money, the contract called for the Fangs to be paid up to $12 million if ExIn saved Hearst an equal amount.

Family members with a stake in ExIn include Florence, who has 37.5 percent (with all of the corporation-controlling and decision-making Class-A stock); Ted, who has 37.5 percent (Class-B stock); James, who has 15 percent; and Douglas, who has 10 percent.

When Reilly's lawsuit went to trial, presiding Judge Vaughn Walker discovered "malodorous" elements in the sale of the Examiner to the Fang family.

Walker investigated 14 previous joint operating agreements between newspapers that had been dissolved in the United States, without interference from the Department of Justice (DOJ). He determined that there had been no court opinions and very little action from the Department of Justice in the cases.

Walker said he was "astonished and disappointed that DOJ would allow itself to be put in a position where the inference can be so easily drawn that its action, or inaction in this case, was political favoritism masquerading as law enforcement."

In sworn testimony during the Reilly trial, Ted Fang said he met with Department of Justice anti-trust lawyer Thomas Horton on five occasions to get briefings as to the timing and conditions of the Hearst Corporation's sale of the Examiner to the Fangs. During this time, the Department of Justice initiated talks with the Fangs while not talking to any other potential buyers for the newspaper.

While the Department of Justice held up the Hearst Corporation's purchase of the Chronicle, two Hearst executives, Examiner Publisher Timothy White and Executive Editor Phil Bronstein, had lunch with Mayor Willie Brown.

According to Walker, White testified twice under oath that he offered favorable coverage in the Examiner's editorial pages in return for Brown's assistance completing the Chronicle deal.

An internal investigation conducted by the Hearst Corporation refuted that claim and said no favorable press coverage for the mayor followed the luncheon.

Walker ruled that the sale of the Chronicle to the Hearst Corporation could proceed, regardless of what the corporation did with the Examiner, but the Hearst Corporation decided to give the newspaper and subsidy to the Fangs anyway.

Fangs Win Round One; Hearst Wins Round Two

Despite the Hearst Corporation's sale of the Examiner to the Fang family, bad blood between the family and the Hearst Corporation runs deep.

In 1994 the Independent sued the Hearst Corporation for predatory pricing, claiming the Examiner underbid the Independent in an effort to put it out of business. The Independent bid $493,000 for the city's business and the Hearst-owned Examiner bid $302,000 and won the contract.

The Independent won the lawsuit, claiming the Examiner's bid was below cost and was intended to financially damage the Independent.

An appeals court overturned the verdict, however, because Superior Judge Donald Mitchell erred in not allowing the Examiner to present an explanation of the criteria it used to justify its winning bid. The appeals court remanded the case back to the lower court to be re-tried.

The lawsuit never went back to trial and was settled as part of the Examiner's sale to the Fangs in 2000.

During the original trial, several people allegedly lied under oath in an effort to win the suit for the Fang family. Marc Chamot, an independent contractor working for the Fangs, said he perjured himself by fabricating testimony concerning a meeting between himself and Examiner Executive Editor Phil Bronstein.

Bronstein, who testified at the trial that he did not threaten to put the Independent out of business, said he did not want to discuss the case.

"It is a morass I have no interest in diving into," he said recently.

Chamot says he was coerced into modifying his testimony three times, at the direction of Fang-family attorney Darrell Salomon, to build a stronger case in the Fang's favor.

The jury decided in the Fangs favor, due in-part to the testimony of Chamot, who told the jury that Bronstein had told him the Examiner was out to "get the Independent" and put it out of business.

Chamot claims at least two other Fang-family employees perjured themselves on the witness stand.

Police Use Examiner Offices for Surveillance

After taking over the SF Examiner and moving its offices to the Fang Examiner Building at 988 Market St., the Fangs allowed the building, including editorial offices, to be used by SF Police Department narcotics officers to observe Market Street in an ongoing effort to fight drug dealing in the area.

According to James Fang in a story published in the Bay Guardian Sept. 25, officers used the building while it was being remodeled in late 2000 and early 2001 but did not use employees' offices. Fang said the building's previous owners gave the police department permission to use the building.

But that version of events was refuted by former Examiner Executive Editor Marty Steffens, who told the Bay Guardian that when she arrived at work one day an officer was in her office observing the street below.

"After that, I heard from time to time that the cops were on the roof," Steffens said.

Fang said police were using the offices while the building was being remodeled and that they were only in the building for about three months.

Rachel Cohen, a member of the media analysis group Fairness and Accuracy in Reporting, is "disturbed" by the arrangement.

"One of the most important missions of the press is to watchdog the powers that be," Cohen said. "And they can't do that if they're working hand-in-hand with the powers that be."