Thursday, August 14, 2014

The Texas Tribune Business Model

Who said there are no second acts in life? Booted from the leadership of Texas Monthly for bad numbers not his real crime, bad journalism, Evan Smith is now running the Texas Tribune both as editor and CEO. As easy as it is to be jealous of his success, as we say in the African-American community you have to give a nigger his due. Smith and his financial backer—venture capitalist John Thornton—are doing something admirable in the Tribune creating valuable content in an information age.
About Evan Smith’s interviewing style: There are basically two approaches to questioning, whether it’s People magazine doing the asking or the FBI. Oprah is at one extreme where the conversation is just as much about the interviewer as the interviewee and the answers don’t matter so much. Smith and his people operate close to the Oprah tradition. It’s a surprisingly effective approach even in public affairs. What’s impressive about the vibe the Tribune puts out is that its journalists have taken a leaf from the Obama book early in his first administration when addressing conflict in the Mideast the president reminded Jews and Muslims that everybody has a narrative. That applies in Texas as well. The bureaucrats who actually run the Capitol day-to-day have something to say. In the proper non-threatening setting, civil servants talk and talk and talk and Smith and his people listen.
What the Tribune really does that’s better than anybody else: not words but numbers, stats, files, all accessible at your fingertips. There’s bill tracking, governor’s pardons, state employee salaries, prison populations and more, all there or at least more there than anywhere else, maintained in databases that are handy. If Evan Smith and crew never did anything else they’ve already helped change journalism forever. In fact it’s all about numbers even in understanding the inner working of the website.
Evan Smith’s salary was an early preoccupation of Tribune management and a pre-emptive declaration was made that he must be paid well. “During the initial stages of the business, the founders determined that a high caliber leader who could lead with integrity and high standards was necessary to ensure the success of a nonpartisan news organization,” according to the Trib’s Form 990 required of non-profits. “CEOs of major foundations and web-based companies, as well as leaders of other public service organizations including ProPublica, MinnPost and PBS were approached to further determine appropriate compensation levels.” Although the current Form 990 is late being posted, Smith’s last cited salary was $300,000 plus change. He has some memberships covered, as well as what must be his tab at the Quorum Club, or the like, and it’s of note that the salaries and bonuses of three names on the Tribune masthead, Smith, executive editor Ross Ramsey and chief fundraiser April Hinkle approach 20% of the budget. Salaries like these seem reasonable enough. Austin is an expensive town and these are talented people, the real issue isn’t how much they’re being paid but where the money is coming from and what effect that source of funding has on the news. In that respect—Austin, we have a problem: Arguably the biggest story in Texas in the last year or more besides the success of the Tea Party has been the showdown between University of Texas Regent Wallace Hall and President Bill Powers of the Austin campus. In a way the Tribune itself is responsible for the original smackdown reporting on a “forgiveable loan” program offered by the UT Law School Foundation which provided hundreds of thousands of dollars each to law faculty, who did not have to repay the money. Call that practice what you will. The Tribune entered the eye of the storm at that point.
          It would be an oversimplification to say that all the bad blood between President Powers and UT System leadership has been due to the cash: Bill Powers, who describes himself as a liberal, was a thorn in the side of the more conservative board of regents even before details of payments became known. It’s said that Governor Perry doesn’t care for President Powers and that’s a heavy weight for any university president to carry, especially with this governor, who can’t let anybody think he can be punked. Since the original report broke—as the story developed a life of its own—including impeachment hearings for Regent Hall and shows of support from various sources for President Powers, it’s been instructive to watch the Tribune’s coverage which has been, generally speaking, to roast Regent Hall slowly over a low flame. Until recently at least, when Hall’s fortunes took a sudden turn for the better. The missing detail in countless pieces of Tribune reportage has been that the University of Texas at Austin, i.e., Bill Powers, is the news site’s major business partner in recent years. Those one-line admissions at the end of Trib stories that UT Austin is a contributor to the website don’t quite do the relationship justice. They’re practically fucking—Evan Smith and President Powers—in a businesslike way.
What we’ve seen in the last year and a half or so is battle by proxies with the governor represented by Regent Hall and President Powers’ flag waved by the Tribune. In the later case, for a price. This hasn’t been an example of journalism at its best but it has been journalism at its most entertaining. The Tribune tried simultaneously to do two things—protect President Powers and take Regent Hall down. In the end Evan Smith almost hit his numbers.
A recent reluctant release of information on spending by UT Austin shows that during roughly the same period as the fight between Powers and Hall, the Tribune received about $200,000 from the university (the exact amount isn’t clear from the figures released by President Powers) for ads and sponsorships of the Tribune and Evan Smith’s various programs. That sum may include money from the business school and LBJ School of Public Affairs which also do business with Smith’s non-profit news source, to say nothing of the campus radio station KUT which does polling with/for the Tribune and for which Smith allegedly pays the university forty large. “Transparency in all things,” Evan Smith likes to tell audiences, “even your own business,” although he has previously objected to efforts to make public the extent of his ties to KUT.
We only know that the $200,000 does not include $63,000 a year Smith also receives as a lecturer at the LBJ School, or the deals the Tribune gets for various festivals that take place on the Austin campus which have included rent-free use of university space. In the context of a significant on-going business relationship it’s almost certainly not coincidence that the Tribune did not report, as others have, that Powers himself also received a large Law School Foundation loan and—as the Austin newspaper pointed out—did not follow the rules correctly in getting the money. Smith’s news organization represents the majority of state government reporting today—as Evan Smith himself likes to note—and was solely focused for the longest time on the alleged sins of Regent Hall.
In the midst of the showdown in September of last year the editor-in-chief wrote to President Powers after a Tribune event on campus: “It was the best festival ever, Bill, and UT-Austin and your team are absolutely one of the main reasons. We had so many people, so much energy, and so many media organizations on this campus. And so many students participated—an unprecedented number. It really came together. Sincerely grateful, E.” From Powers: “Thanks, Evan. I had the same impression. You are great partners.” Prior email included birthday wishes from Smith to President Powers, all in the timeframe of the dispute with the regent. Smith has previously been an invited guest in Powers’ presidential box for Longhorn games. That’s cool—it’s not a big deal—but exactly how does that translate into impartiality? It is part of a pattern, though. At Texas Monthly, according to study done at the UT School of Journalism, Smith was documented to be first editor of the magazine to provide the business side the calendar of journalistic production, in order to synchronize ads to content. In a magazine that’s kind of expected, although perhaps not optimal. At a newspaper it’s something different altogether. Evan Smith is fond of telling audiences, as he recounts the Tribune’s successes, that he often thinks of himself as editor “in the morning” and chief fundraiser/CEO “in the afternoon.” A much more likely scenario is that he is fundraiser and editor simultaneously all day long.
Critics want to look at corporate contributors for conflicts of interest but the Tribune is devoted to state policy and its ethical underbelly is represented by Smith’s relationship with government not corporate sponsors. Among the Tribune’s biggest “partners” are the state’s public universities. If for example you review Smith’s website, A&M stories are without exception positive, detailing university outreach or new programs: C’mon now, this is Texas, it’s not like controversy is hard to find. Choose an A&M campus at random—Corpus Christi for example, where leadership seems to be particularly challenged—and the university president has been using public funds to pay his dues at the Corpus Christi Yacht Club and his administration refuses to release details of a big drone development program unless requestors pay hundreds of dollars in search costs. Certainly the Tribune tries to go soft in order to encourage disclosure, but it also seems not to be above picking targets according to who’s paying.
            As the Hall story developed critical mass it was interesting to see who denounced the “renegade” regent. The first cut is always the deepest. The main accusers seemed to be Senator Judith Zaffirini, Democrat of Laredo, reported in the pages of the Tribune, and Rep. Jim Pitts of Waxahatchie at the hearings of the Select Committee on Transparency brought to us without commercial interruption by Speaker Joe Straus. As it would turn out all three—Straus, Pitts and Zaffirini—while complaining that Hall was on a witch hunt—were in jeopardy from what he was looking into. Surprise. The Tribune’s coverage was mentioned during the impeachment hearings and even footnoted in the final report recommending Hall’s trial. That may be coincidence, good reporting, nothing else.
More likely is that journalists are part of this story, a big part, especially in the context of the new interplay between traditional news sources and upstart online operations. It’s not a pretty process sorting out roles and responsibilities, who gets money from whom and the issue of who reports what will continue to be problematic. A particularly apt example—of a similar kind of preferential reporting and how it arises—comes from California not Texas, and points to the selectivity in reverse you see in Austin at the Tribune.
This incident also involved a familiar player from the University of Texas.

Almost five years ago, the same time the Tribune started to publish, the Bay Citizen was launched with the same business plan—but in Northern California, an online startup promising to reveal how the world really works, through the eyes of good reporters.
The very next year the Citizen ran an extraordinary report that University of California President (former University of Texas Chancellor) Mark Yudof had spent $600,000 of the university’s money to rent a home for his wife and himself. For one year.
The context was mind-boggling: California was in the midst of a budget meltdown, the University of California was in the worst financial straights imaginable—calling for large tuition increases accompanied by student protests daily—and Yudof’s wife, at taxpayer expense, was modifying an elevator for her own use in the rental, capped by the trashing of the property, leaving a $50,000 repair bill for which the university was also responsible. Neither the San Francisco Chronicle which is the Hearst paper in Baghdad by the Bay—traditional first responder for University of California Office of the President news—nor the Los Angeles Times followed the story, even after Yudof was reprimanded by the regents. The Times higher education reporter, who has been covering UC for a long time and has consistently managed not to question authority, did try however to cover Yudof’s ass by writing about the poor state of repair of the UC president’s official residence. Chronicle reporter Nanette Asimov wrote nothing at all. In this case, personal relationships between traditional journalists and the people they cover, something which startups are supposed to avoid, appeared to bar “doing the right thing.” In the case of the Tribune there seems to be a simpler dynamic at work. It’s all about money.
“From the beginning, we talked about this has got to be a sustainable model,” Evan Smith said in meetings of non-profits two years ago and again last year. “What that means is you’ve got to diversify your sources of revenue. You’ve got to have enough buckets so that if one bucket is not as high at the end of the year as you anticipated another bucket is overfull and flowing into that bucket.
“We literally have been willing to put a price tag on everything up to the point at which it compromises our integrity. We’re running a business here.”
             Smith specifically noted in these talks to the non-profit community, as he taught others what he just learned, that while big donations from corporations—foundations and the rich, and such—are welcome, his business model relies more on smaller regular donations, on a yearly basis, which exactly describes what he’s getting from Texas’s public universities. This is, like, regular income—reliable cash flow from the people of the state. UT, A&M and Texas State University System are among those paying. In what may be another example of editorial payola—who knows, the evidence is only circumstantial—but points to Evan Smith and the Chancellor of the Texas State System, Bruce McCall. Last year the Tribune ran a piece on the sudden departure of the first Latino president of a public university in the state, Richard Maestas of the Big Bend campus was literally in West Texas one day and recalled to Austin the next. Locals say they knew an administrative hit was in progress when Texas State officials arrived by plane at Alpine’s tiny airport, on the morning in question. It was like something out of Conrad—Maestas’s methods had been judged unsound in Austin—he was to be terminated, no further duties, removed from his office but Texas State would pay out his salary for the rest of the year.
A Tribune story noted the abrupt removal and as followup—nothing. That Dr. Maestas was removed by Texas State leadership a week after he fired the football coaching staff could have been established right away, and eventually was—people were talking openly about his dismissal—but no definitive cause was given. Nor has it ever.
The original Trib story was updated but the obvious next piece was never done. There was no “good” story possible here for Texas State: Chancellor McCall either screwed up hiring Maestas in the first place, or firing him later, since his tenure in Alpine was so short. Texas State System, which is the same kind of sponsor of the Tribune as A&M—less than UT Austin but still worth about $100,000 a year—didn’t want the other shoe to drop. Indeed, as part of its publicity contract with Hahn Communications, Texas State is advised to spend heavily with the Tribune. Hahn’s contract also promises help placing stories in senior legislators’ hometown news, during the legislative session. Nothing is left to chance. Everyone who counts is properly connected to everybody else. Increasingly, the Tribune provides the wiring. At a price. It’s a business model—a startup model—take risks, be willing to make mistakes, don’t look back. That’s what Smith advises his non-profit audiences. That is what he has done and it is mostly good. Mostly.
The recent spotlight has been on the University of Texas and for good reason. Among the accusations against Regent Hall was that, while looking at possible cooking of fundraising figures by President Powers, Wallace Hall somehow forced out the law firm Vinson & Elkins, which was involved in the fundraising review. Those of us with institutional memory will recall Vinson & Elkins as lawyers for Enron, the most corrupt company in America of its generation, and Bill Powers as an Enron board member, so the real question was not if the law firm was forced out but how V&E was placed in a post-Enron position of trust in the first place. Another accusation against Regent Hall appears to have greater validity. That he targeted Bill Powers. Once again there may have been good reason.
Wallace Hall is reported to have shown an abnormal interest in Powers’ travel and in his wife: if you look at Texas Department of Transportation flight logs for the period prior to the showdown, President Powers appears as one of the most frequent users of state airplanes in circumstances in which their use is not approved.
Powers made a series of small-plane flights, at thousands of dollars per aircraft use, to cities where there was commercial service readily available. He didn’t need for example to take a state plane as lone passenger with two pilots and at a cost of almost $4,000 to fly 375 miles to talk to the president of the University of Oklahoma. But he did even though there is commercial passenger service to Norman, OK. Power's wife appears on some of the passenger manifests as an employee of the president’s office and if nothing was made of these violations at the time it’s probably because among the other passengers on one of these Longhorn Air flights were then-Chief Justice of the Texas Supreme Court Wallace Jefferson and Associate Justice Harriet O’Neill. Both jurists retired shortly thereafter. The point is that where there’s smoke there’s usually fire at UT, and for that reason it helps to know Powers’ origins in his present position. He had a godfather, named Mark Yudof. Yudof served as an assistant dean at the law school when Powers was first a professor there, UT Executive Vice-President and Provost Mark Yudof later groomed Powers for a position of authority at the School of Law, when Mark Yudof became chancellor of UT System he helped make Powers president of the biggest and most prestigious university in the state. If President Powers’ tenure has been ethically-challenged, so was that of his mentor. The issue that will remain the defining aspect of the Hall-Powers fight is legislators’ improper influence on admissions. It did not start with Bill Powers but he has embraced the practice with apparent zest.
Favoritism shown to the children of the connected likely occurs at all the campuses in the state, maybe in the nation; at some schools it’s written into the rules. But not here. The favoritism was extraordinary in regards the UT Law School and marked by literally incredible testimony of Rep. Jim Pitts, powerful Republican chairman of the powerful House Appropriations Committee, who has announced his retirement from office. Rep. Pitts’ claimed that his request to President Powers to get his son into the Law School was a mere “form letter.” He accused Regent Hall of a variety of sins, while denying that he himself had done anything improper. The same dubious defense could be made by senators Zaffirini and John Carona, Republican of Dallas, who was recently defeated in a primary race. Both used stroke to achieve dubious admissions. It makes you feel almost sorry for Powers, it's almost a form of blackmail, could he really afford to reject the application of the son of the chairman of the Appropriations Committee? Not likely. And then there was the press. As crooked admissions suddenly became the most interesting issue in higher education the Tribune was suddenly placed in an uncomfortable position still trying to protect the man who, it was now known, acted on legislators’ pleas. Executive editor and Tribune #2 Ross Ramsey opined that Regent Hall really presented a challenge to the rights and privileges of legislators to use influence.
“Wallace Hall,” this amazing defense of corruption began, “has been poking at this for more than a year, in a way that has prosecutors and impeachment-minded lawmakers questioning what he has done and why he has done it,” Ramsey wrote just after the Hall story suddenly changed directions.
“Would it be more surprising that elected officials can get people into top schools according to a kind of time-honored friends and family plan, or that they do not have the clout to get someone who is marginally-qualified into, say, a state college of law or business?” The Tribune editorial argued that the public wants a legislator who can get the job done—who can get someone on the phone for example—or, in the case of the University of Texas, write a letter that will get an otherwise-unqualified student into class. (A similar argument, which was not made, is that the public expects a fair process in admissions to public universities.) Ramsey was correct however in his use of the term “marginally-qualified,” to describe many of the legislators’ kids, since the issue of influence arose when these privileged students didn’t pass their exams.
The Trib #2 was writing his defense of Powers in a context in which it was suddenly not clear who was more at risk, President Powers or the renegade regent. “Hall is critical of UT-Austin for allegedly having done the bidding of lawmakers,” Ramsey wrote, “but the real threat is to the lawmakers themselves. It is their clout that he is questioning,” a strange claim to make unless the Tribune editorial board believes that there are two sets of rules, one for legislators and one and for the rest of us. Since that editorial, other state universities have moved to cover their own tracks. Both A&M and the medical school at Texas Tech have said that they will only release documentation on legislators’ influence after requestors pay $110,000, to each school, for a records search. One of the complaints against Regent Hall at the impeachment hearings was that he attempted to avoid charges for open records requests. We now know why.
Similar barriers to release were recently offered by UT Southwestern Medical School and Texas State University System. At UT Medical Branch on Galveston Island where corruption has a long and storied history, medical school officials have said they will not look for influence-loaded correspondence because the search would not be administratively feasible. “Please be advised,” wrote UTMB records manger Becky Wilson in July of this year, “that UTMB’s database does not track information you are seeking. To determine which applicants may have had a legislative inquiry would require a manual review of thousands of applicants files.” Ms. Wilson is not denying that the practice exists, mind you—so-called “legislative inquiries”—only the university’s willingness to look for them. It’s important to remember that Gov. Perry chose the nuclear option here. He didn’t have to. He did the right thing, which was easy for him here because he’s an Aggie not a Longhorn. Cronyism is against society’s rules for a reason, it’s inefficient as well as unfair, but after being used here to discredit Bill Powers, the revelation of improper influence in admissions will now be hard to get back in the bottle. There are a lot of scenarios possible of what we have been seeing for the last year or so at the Capitol but a likely bet is that the governor wanted to get rid of Bill Powers and that proved more difficult than first foreseen. Wallace Hall was chosen to “look for something” on Powers—and, as it turned out, there was something to find. The public should be happy that a corrupt system has been exposed but it’s hard to believe UT or anyone else is going to do an exhaustive and complete review of legislator influence, as UT has promised. These are bodies that everyone including legislators and probably the governor want to keep buried.
Of the three main figures in this drama Hall and Smith are actually the most interesting. Wallace Hall kept his head down and plowed forward even when he was being accused of every wrong in Texas short of the Kennedy assassination. Personally, not much is known about him, but from his behavior he must have a big pair. Early on he was specifically chosen for investigative tasks as a regent, which sounds very much like he was brought in for a specific purpose, an administrative hit. He certainly seems to have taken his work seriously. In the end, he got there and he has done the public a great service.
Evan Smith, for his part, has shown that the weakness of his business model is mostly ethical. He’s also shown he’s a formidable guy. If you ignore his reliance on the state for funding, in Smith you’re left with a kind of journalistic impresario not often seen in our remarkably staid profession. You've heard of yellow journalism, this is the green kind. A recent article in the New Yorker discussed the concept of “disruptive innovation” in a journalism context (studied and rejected as a new business model for the New York Times) in which the traditional wall between the editorial and business sides of a publication is allowed to fall. Smith has already done that. Twice, if you include his time at Texas Monthly. While the Hall-Powers coverage has been one-sided that’s small price to pay (mostly borne by Regent Hall) for the good that this conflict ultimately did, and for the on-going good the Tribune does. There may be corruption at work here, in the Tribune-UT axis, but if there is, the heavy isn’t Evan Smith.
It’s John Thornton.

If you look at investments made by the University of Texas Investment Management Company—the 21-billion-dollar bank account that funds UT System—in the past few years UTIMCO has had investments valued at almost $190 million with Mr. Thornton’s Austin Ventures. The current figure, per UTIMCO, is about $50 million.
Last year the Bay Citizen, which outed Mark Yudof’s expensive housing back in the day, merged with an organization called the Center for Investigative Reporting and the CIR has continued looking into operations at the University of California and recently published another interesting story. In the last decade, of the top ten university investment funds in the country the absolutely worst-performing was UC, per the CIR report. Number nine on the list, the second worst performance was a familiar name: UTIMCO.
You would think that the performance of the huge UT investment fund would be a fertile area for Tribune reporting: maybe one of the website’s much-praised databases, showing state investment returns and bonuses paid. But in almost five years the Tribune has produced no examination of this sensitive area of state policy. That’s a surprise because the really juicy scandals at UT in recent years have almost always involved UTIMCO—as long as there’s been a UTIMCO—the last two decades or so, yet the only two significant mentions of UTIMCO activities in Trib history have been two interviews—one of them video and one print—of UTIMCO CEO Bruce Zimmerman in which he was allowed to praise his own company’s performance undisputed. In the most recent, the written interview, a few weeks ago, Zimmerman was allowed to claim that in his seven years as CEO, $3.7 billion has been added to university coffers.
That may be true but what he failed to add—and was not asked—was a different standard, what the CIR measured, how he has performed against his peers. That’s how you tell if an investment fund is making money. One might also mention that Zimmerman has received $6.4 million in bonuses in the last five years alone. UTIMCO president Cathy Iberg has received $4.3 million in bonuses in the same time, a period of improving but still lackluster returns. Indeed, when last we looked Zimmerman’s brother-in-law was a partner at Austin Ventures. According to UTIMCO, the Austin Ventures returns have been acceptable but it’s probably also true that John Thornton has made more money from the University of Texas than he has “given” to the Tribune. For Smith and Thornton both, relying on the University of Texas has turned out to be an effective business plan.
The issue here is connectedness more than corruption. The world is getting smaller everyday and certain businesses, like venture capital, and journalism, rely on relationships that aren’t communicated clearly by a single line at the end of a story. Ditto, the law. Austin has become a particularly wired town and that includes the courthouse. Gregg Cox, the prosecutor who’s investigating Regent Hall, is a Longhorn booster and knows President Powers personally and has declined to recuse himself. Once again, also on this legal front, we won’t be getting the real story about why shit happens the way it does.


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