The Road to Zell

It was plain from the beginning that Sam Zell didn't have much of a strategy for reversing the revenue decline at the Tribune Co's newspapers. And the failure to realize that a slowdown in real estate and autos -- the credit crunch had started a half year before the deal to buy Tribune closed -- would reduce revenues sharply was an act of colossal stupidity on Zell's part and on the part of the bankers who made the era of dumb money possible. Zell loaded up the company with nearly $13 billion in debt, which required interest payments of nearly $500 million in the first half of 2008. The plan, such as it was, was to pay down debt not with operating cash but with asset sales. One problem: Most of the assets were themselves dumb-money assets -- trophy properties such as the Chicago Cubs, office buildings, and big-city newspapers that couldn't support a lot of debt on their own and whose purchase would require easy credit. The hope to stay current on debt payments rested on selling the Chicago Cubs, perhaps the greatest Midwestern trophy property of all. But the credit crunch decimated the net worth of many of the potential buyers, and lenders fell by the wayside. Having failed to find any greater fools, Tribune filed for bankruptcy.