Editors note: To celebrate Crosscut's 10th anniversary as a local news organization, so we are featuring the stories from April 1, 2007 on our homepage.
A potential bombshell is buried in 3.5 million pages of documents and testimony collected for a winner-take-all arbitration between Seattle's two daily newspapers. In a deposition, a former Seattle Times Co. executive claims that Times officials in the mid-1990s secretly violated their joint operating agreement (JOA) with Hearst Corp., owner of the Seattle Post-Intelligencer, using unfairly lopsided circulation spending to keep the Seattle Times' circulation lead over the P-I. Times executives then tricked Hearst into giving up their paper's exclusivity in the morning, the former executive claims.
Since the joint operation began 1983, the P-I had been the morning paper and the bigger Times had the less-desirable afternoon publishing cycle. Today, of course, both are morning papers and the P-I is in a circulation death spiral. The 122-page deposition by former Seattle Times Co. Vice President Stephen Sparks was given under oath to federal and state antitrust investigators in 2004.
Sparks headed circulation for both the Times and the P-I under the JOA from 1993 to 1997. Speaking with Hearst attorneys under oath last November, he repeated the allegations. A copy of Sparks's earlier federal deposition was obtained by Crosscut. Sparks' depositions are likely to be among the key documents under consideration when arbitrator Larry Jordan begins hearing the case behind closed doors on April 9. (Update 4/6/2007: The proceeding has been postponed until April 16.) The retired Superior Court judge is expected to issue a non-appealable ruling on the Times-P-I dispute by the end of May.
People familiar with the proceedings say both sides have mobilized double-digit teams of attorneys and investigators and are preparing to present Jordan with a massive case. Without elaboration, the Times Co. categorically denies Sparks' allegations, pointing out that the U.S. Justice Department took no action after it learned of his claims. The Justice Department ended an investigation of the Seattle JOA in May 2005, saying no antitrust laws were broken. But it did not comment on the JOA contract between the Times Co. and Hearst that is now the subject of the arbitration. Both the Times Co. and Hearst have agreed not to disclose any details at issue in the proceedings.
The JOA, which was signed in 1981 and implemented in 1983, is essentially a legal monopoly allowed by the Newspaper Preservation Act of 1970 and was approved by the U.S. Justice Department. The privately held and locally controlled Times and Hearst's P-I maintain separate newsrooms and compete for readers. But the Times gets a greater share of profit and handles the business side — selling advertising and printing, circulating, and marketing both papers. The agreement says the Times Co. "will use its best efforts, using the same degree of diligence" to promote and circulate both papers.
The Times Co. has been trying since 2003 to shut down the P-I, claiming that the fading circulation of its smaller partner and editorial rival is a financial burden on The Seattle Times. In 2003, it invoked a JOA provision requiring Hearst to negotiate an end to the agreement and close the P-I if the Times Co. could prove three consecutive years of losses under the JOA. Hearst disputed the Times' loss claims and sued in King County Superior Court to block the P-I's closure. Pretrial disputes dragged on until last year, when both parties agreed to a confidential, secret, binding arbitration. In addition to asking arbitrator Jordan to reject the Times loss claims, Hearst is expected to ask Jordan to rule separately on a claim that the Times favored itself under the JOA, costing the P-I millions of dollars in unrealized revenue.