McClatchy family newspaper empire, which began during Gold Rush, ends in bankruptcy

James McClatchy helped launch The Daily Bee in Sacramento in 1857, and he and his family led the company for 163 years.
James McClatchy helped launch The Daily Bee in Sacramento in 1857, and he and his family led the company for 163 years. Sacramento Bee file

The Civil War had just ended, Sacramento was still a dusty Gold Rush town and Irish immigrant James McClatchy had just sunk the hefty sum of $1,800 into the newspaper business.

That initial investment — the equivalent of $30,000 in today’s dollars — marked the beginning of what became a coast-to-coast newspaper chain known as The McClatchy Co.

A century and a half later, the family empire is in tatters, brought down by years of struggles in the digital era and an unsustainable debt burden left by an ill-fated $4.4 billion acquisition in 2006. The owner of The Sacramento Bee, Miami Herald and 28 other papers filed for Chapter 11 bankruptcy early Thursday under a deal that will cancel a majority of its debt but leave McClatchy in the hands of a group of hedge funds led by Chatham Asset Management of New Jersey.

The bankruptcy marked a humbling turn for a family that once acted as kingmakers in California politics. The McClatchys mingled with governors and presidents — and got Walt Disney to design a mascot for them. Historians said the company’s flagship paper, The Sacramento Bee, long a beacon of Democratic politics in what used to be a Republican state, championed the careers of such candidates as former Gov. Pat Brown.

“The Bee was a pillar of support,” said Brown’s son, former Gov. Jerry Brown.

Kevin McClatchy, the current board chairman and great-great grandson of founder James McClatchy, called the bankruptcy a “bittersweet” development that, by dramatically lowering the debts, should leave the company “better prepared to deliver on our mission that has been strong and constant across five generations.”

James McClatchy, an Irish immigrant, arrived in New York in 1841 at the age of 16. He found work at the New York Tribune and later heeded his boss Horace Greeley’s legendary advice: “Go West, young man.”

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McClatchy moved to California in 1849 as a correspondent for the Tribune but soon went to work for two competing Sacramento papers, the Placer Times and the Transcript. By then, so many newspapers had come and gone in Sacramento’s early days that the city was known as “the graveyard of newspapers.”

Seven years later, on Feb. 3, 1857, barely a year after the first passenger train in the West made a trial run through Sacramento, McClatchy helped start a six-day-a-week paper called The Daily Bee. It was four pages long and cost 25 cents for a week’s subscription.

Although McClatchy was initially an editor, not an owner, the company dates its origins to the Feb. 3 publication. Initially a morning paper, The Bee soon switched to afternoon publishing and wouldn’t switch back until the late 1970s.

McClatchy had other interests, and served a two-year stint in the 1860s as Sacramento County sheriff. But in 1866 he cemented his relationship with the newspaper. For $1,800, he bought a one-third stake in the paper.

“It is a good bargain for me,” he wrote in a letter to his wife, Charlotte, who was away receiving medical treatment.

James McClatchy died of a stroke in 1883 and bequeathed his ownership to his sons Valentine and Charles Kenny “C.K.” McClatchy. Along with shares owned by his widow, the surviving McClatchys now had firm control of The Bee.

McClatchy buys more newspapers

The Bee became known as a fearless, crusading newspaper, picking fights with judges, governors and others as it built its subscriber base across Northern California. But it wasn’t until the 1920s, under the direction of C.K.’s son, Carlos McClatchy, that the company began to expand.

In 1922, the company launched The Fresno Bee. Five years later the family bought the Modesto News-Herald and renamed it The Modesto Bee. The family jumped into radio and TV in the Central Valley and Northern Nevada.

When Carlos died in 1933, control passed to his sister, Eleanor, an aspiring playwright with a severe stutter and scant experience in the publishing business. Along with editor Walter Jones, she ran what became known as McClatchy Newspapers for more than 30 years.

It was during Eleanor McClatchy’s watch that The Bees’ cartoon mascot, Scoopy, was born. She approached animator Walt Disney in 1943 about creating a logo for McClatchy, and he agreed. His price: a $1,500 donation to the Army Relief Fund.

Eleanor McClatchy had another influential friend: President John F. Kennedy, whom she persuaded to reroute an interstate highway so it would spare much of the city’s historic Old Sacramento district.

“I think of her as this little lady — people would underestimate her,” said Sacramento city historian Marcia Eymann. “She had a friendship with JFK.”

After Eleanor McClatchy retired in 1978, her nephew C.K. McClatchy took charge, and expanded the company’s footprint beyond California for the first time, adding papers in Alaska and Washington state.

The 1980s became a pivotal decade as the family came to grips with questions about succession. The company sold stock to the public in 1988, under a two-tier stock structure, popular among newspaper companies, that vested voting control with the family. After C.K. McClatchy died in 1989, the board of directors named a non-family member as CEO: Erwin Potts, a former newspaper reporter from North Carolina who’d worked in McClatchy corporate offices since the mid-1970s.

Potts engineered the 1995 purchase of the News & Observer newspaper in Raleigh, N.C., the company’s first acquisition on the East Coast. Two years later, Potts’ successor Gary Pruitt announced the purchase of the Minneapolis Star Tribune for $1.2 billion – still a record for a single American newspaper.

Knight Ridder deal brings grief

By that point, the McClatchy family had reduced its profile around Sacramento, with several making their mark in other communities. Kevin McClatchy owned the Pittsburgh Pirates from 1996 to 2007, although he would later become McClatchy’s chairman. His cousin Brown McClatchy Maloney, another member of the board, bought radio stations and a weekly newspaper in Washington state. Another cousin on the board, William McClatchy, is a Bay Area entrepreneur and real estate investor.

Family member Molly Maloney Evangelisti has been a director on the board since 1995 and is the largest single shareholder. She is known in Sacramento as one of the forces behind the California Central Valley Spelling Bee.

In the meantime, the company kept expanding. The Knight Ridder acquisition, announced by Pruitt on March 13, 2006, turned McClatchy into the nation’s second-largest newspaper chain, up from No. 10, and nearly tripled its revenue.

The deal cost $4.4 billion in a mixture of cash and stock. McClatchy also assumed $2 billion in Knight Ridder debt. Even after McClatchy spun off a dozen of the Knight Ridder papers to reduce the financial strain, the company still owed lenders $3 billion.

There were already signs that the newspaper industry was in trouble, and McClatchy completed the deal just as the loss of advertising and subscriber revenue to the internet accelerated. Within months, it sold the Minneapolis paper for $690 million, or a little more than half of what it paid.

Even as McClatchy ramped up its own digital strategy, it was unable to gain enough revenue to make up for the downturn in print. While the debt was whittled down to $700 million, it continued to weigh heavily on the company and ultimately triggered the bankruptcy.

McClatchy Chief Executive Craig Forman alluded to the effect the Knight Ridder acquisition on McClatchy’s fortunes in a conference call with investment analysts last November.

It was a deal, he said, “made in another newspaper era.”

Editor’s note: This story was based in part on the reporting of former Sacramento Bee reporter Steve Wiegand and his book, “Papers of Permanence,” published by The McClatchy Co. to commemorate the company’s 150th anniversary in 2007.

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Dale Kasler covers climate change, the environment, economics and the convoluted world of California water. He also covers major enterprise stories for McClatchy’s Western newspapers. He joined The Bee in 1996 from the Des Moines Register and graduated from Northwestern University.