The Chicago Sun-Times inflated its daily circulation figures by as much as 10 percent over a span of six years, and its parent company plans to pay advertisers $27 million to compensate for overpriced advertising based on the false numbers, the paper's owners said yesterday.
The Sun-Times is attempting to unravel a circulation scandal that emerged following the November resignation of chief executive Conrad M. Black, controlling shareholder of Hollinger International Inc., which owns the Sun-Times and other newspapers.
According to an internal report released last month, Black and other former company officials allegedly stole more than $400 million in Hollinger revenue from 1997 to 2003, a period coinciding with the Sun-Times's inflated circulation. Hollinger is suing Black and others for $1.25 billion. Black denies all wrongdoing.
The Sun-Times reported the faulty circulation numbers to the Audit Bureau of Circulations, which accredits newspaper sales figures and whose numbers are used to set advertising rates. Advertisers that paid higher rates for Sun-Times ads based on the inflated numbers have sued to recoup the difference between what they paid and what they should have paid.
According to yesterday's report from a Hollinger committee working with a Chicago law firm and Deloitte & Touche LLP, the Sun-Times began reporting inflated sales figures to the Audit Bureau in April 1998, when the paper was overstating Monday-through-Friday sales by 0.57 percent per day and Sunday sales by 0.15 percent. Saturday sales were not inflated, the report said.
"Inflation of the Chicago Sun-Times single-copy circulation began modestly and increased over time," the report said.
By April 2004, the Sun-Times was inflating its daily circulation by an average of 10.4 percent per day and 4.6 percent on Sundays. Its actual circulation was 432,230 copies during the week and 359,083 on Sundays.
In July, the Sun-Times said it was reducing its current daily circulation figures by 23 percent, taking its actual current sales to well under 400,000 copies per day. In Chicago, the Tribune is the city's biggest paper, with a daily circulation of 495,000 and Sunday circulation of 1 million.
"The unacceptable practices we uncovered and discontinued betrayed the trust placed in us by advertisers and wasted valuable resources that could have been invested in our journalism and customer service, merchandising and marketing," said Sun-Times Publisher John Cruickshank.
The Sun-Times joins Tribune Co.'s Newsday and Hoy newspapers and Belo Corp.'s Dallas Morning News in having revealed they had inflated their sales figures -- the Tribune papers by as much as 19 percent. Tribune said it would incur as much as a $95 million charge to compensate advertisers. Belo said it will pay advertisers $23 million in cash and take a $26 million write-down. Also, Belo said last week it would cut 250 jobs.
At the Sun-Times, the inflation was accomplished by three means, the report said: breaking Audit Bureau accounting rules; paying distributors to keep unsold papers instead of returning them to the Sun-Times; and rerouting the paper's recycling proceeds into a trust that bought newspapers for local schools, a practice, the report said, that "had the effect of having the Chicago Sun-Times purchase its own newspapers."
The report said circulation numbers were also inflated at Hollinger's Daily Southtown and Star, suburban Chicago papers, though the faulty figures were never reported to the Audit Bureau. The Jerusalem Post also pumped up its sales figures, but Hollinger said those numbers were "immaterial."