New Yorker dissects Whittle

October 24, 1994|By New York Times News Service

NEW YORK -- The financial difficulties that prompted the collapse of Whittle Communications Corp., the once high-flying alternative media company led by the entrepreneur Christopher Whittle, were significantly more severe than previously believed and masked in part by accounting misrepresentations, says an article in The New Yorker.

The article also reported that Benno C. Schmidt Jr., the chief executive of the Edison Project, Whittle's expensive effort to found a chain of privatized schools, recommended to the Edison board that Mr. Whittle be removed as chairman.

The article, called "Grand Illusion," appears in the magazine's Oct. 31 issue, which goes on sale today. It was written by James B. Stewart, a former editor of the Wall Street Journal who is now a staff business writer at the New Yorker.

The article is one of several coming post-mortems on Whittle, which has sold or closed virtually all its operations. GQ and Vanity Fair magazines are also preparing articles on Whittle's rise and fall.

"The amazing thing is he escaped serious scrutiny for so long," Gary Belis, Whittle's former media relations director, said yesterday.

"Chris Whittle had a remarkable ability to get smart people to do stupid things," added Mr. Belis, who left Whittle in late 1991 and is now corporate publicity director at Wenner Media.

The article reports that Whittle Communications failed to pay state personal property taxes on the hundreds of thousands of videocassette recorders and television sets used for Channel One, its controversial sponsored weekday newscasts for high school students, and failed to file returns in many states that impose such taxes. The article estimated that Whittle may face more than $10 million in unpaid tax liabilities and penalties as a result.

Those liabilities were a reason K-III Communications Corp., which agreed in August to buy Channel One from Whittle, has reduced the purchase price to $240 million from $300 million, the article said, and insisted on indemnification.

Telephone calls yesterday to Mr. Whittle's homes in East Hampton, N.Y., and Knoxville, Tenn., were not answered; the number for his apartment in Manhattan is unlisted. Telephone calls to David Adler, a spokesman for K-III in New York, were not returned.

Some previous articles about Whittle, particularly a report in the Aug. 22 issue of Business Week, described serious financial problems with projects like Channel One and Special Reports, magazines and television programs for doctors' waiting rooms that were discontinued after sharp losses; the New Yorker article recapitulates some of the Business Week material like a decision by Time Warner to write off its entire $185 million investment in Whittle.

But the New Yorker article is perhaps the most detailed to date about Whittle's finances, particularly what it described as "aggressive accounting practices" that resulted in "a significant overstatement of Channel One's revenue."

The article said that when Channel One failed to sell all its commercial time, additional spots for advertisers like Mars Inc. and Pepsico were run and accounted for as current revenue, overstating actual revenue in one instance by nearly 20 percent.

"Even inside the company, you were always trying to get a handle on what was real and what wasn't," Mr. Belis said yesterday, adding that there was a "hall of mirrors" quality to Whittle's palatial Knoxville headquarters, which were nicknamed "Colonial Whittlesburg."

"The mantra," Mr. Belis said, "was, 'Are these Whittle numbers or real numbers?' "

A telephone call yesterday to Mr. Schmidt's residence in Manhattan was not returned. In the Business Week article, however, Mr. Schmidt was quoted as saying that Mr. Whittle "hasn't been involved at all in day-to-day activities" at Edison.

Edison might be "the greatest" of Mr. Whittle's illusions, the New Yorker article concludes, because Whittle's financial failings mean that "the likelihood at this juncture of major investors trusting their capital" to Whittle "seems remote."

"An even more fundamental drawback," the article says, "is that once the public-school administrators of America have absorbed the magnitude" of Whittle's "failure with his other ventures, they are hardly likely to trust him with their tax dollars, let alone their children."

Robert Hope, the former head of a Whittle unit, Whittle Events, who now operates it as Hope-Beckman in Atlanta, said yesterday: "What happened with Chris is pretty simple. He bit off more than he could handle."

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