The Intercept, a billionaire-funded public charity, cuts back

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On Wednesday, First Look Media delivered the latest in a flurry of bad news for digital media: the company, which includes The Intercept and was founded by a tech billionaire turned Twitter critic of Donald Trump, said it could no longer afford its research team, and was eliminating those jobs as part of a 4 percent cut in its workforce. “I am sickened,” Intercept co-founder Laura Poitras wrote in a March 13 email reported by The Daily Beast. The “beating heart of the newsroom,” she said, had been torn out.

That a billionaire is laying off employees is not a shock, except  in this case the billionaire’s company was said to be in the public interest. Specifically, The Intercept is classified as a “public charity.” For nearly two years it has been soliciting donations from its readers for “fearless, independent journalism.”

“On the simplest level,” Intercept co-founder Glenn Greenwald wrote in a May 2017 appeal, “reader support will increase our funding, enable us to hire more great reporters, editors, designers, researchers, and others who make our journalism possible, ensuring that we continue to thrive and grow.”

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But a review of tax filings shows that, despite a belated effort to diversify its funding stream, both The Intercept and its parent company are still almost entirely dependent on one billionaire, Pierre Omidyar, and his gifts of stock in eBay and PayPal. Omidyar’s funding of First Look Media, totaling almost $90 million between 2013 and 2017, has helped cover the cost of salaries at The Intercept that dwarf those at other center-left, nonprofit outlets. While it’s unclear how much of Omidyar’s funding is benchmarked for The Intercept, its largesse may force the non-profit side of the company to abandon its IRS charitable status and reclassify itself as a private foundation. This, in turn, would mean stricter oversight, more charitable donations from the company, and more taxes on Omidyar’s remaining pledge to First Look of some $160 million. Following the layoffs, a spokesperson for the First Look affirmed that “Pierre continues to be a supporter of FLM,” and that “no reporters or editors were impacted” by the layoffs.

In 2013, Pierre Omidyar, the founder of eBay, announced he was investing $250 million in the dying industry of journalism. And he was hiring an all-star cast for the resurrection—journalists with Academy Award nominations to go with their reputations for fierce reporting and unsparing commentary. For a time, it was a beacon of hope. Soon, however, the budding newsroom was generating the wrong kind of content.

“The Unmanageables,” was the Vanity Fair headline a little over a year later. “Can First Look Media make headlines that aren’t about itself?” By that point there was turmoil: Matt Taibbi, one of its star writers, had returned to Rolling Stone, complaining of bureaucracy and micromanagement while himself facing a complaint of misogyny and unprofessionalism from another First Look employee. John Cook, editor in chief of The Intercept, also left, with apparently little love lost. And another staffer, former Harper’s reporter Ken Silverstein, had already written a tell-all for Politico entitled, “Where Journalism Goes to Die.”

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After that, things pretty much steadied. The Intercept produced the sort of reporting on crime, the border and America’s wars at home and abroad that had always been hoped for, much of it by writers unknown when it launched. There were still the unfortunate headlines—Reality Winner was imprisoned after giving The Intercept an intelligence report on Russian government hacking of state voting systems, and a former Intercept staffer was convicted of making hoax bomb threats at Jewish Community Centers—but the straight reporting often was and is top-notch.

But it remains curious, and especially so in the wake of layoffs: with a billionaire for a founder, why does The Intercept need to solicit donations from its readers? And now, with cuts being made from the bottom of the organization, eyes are on its salaries at the top. First Look Media Works, Inc.—the tax-exempt 501(c)(3) side of FLM, and parent of The Intercept—paid Greenwald more than $1.6 million from 2014 to 2017, the last year for which there is a financial disclosure. In Donald Trump’s first year in office, his salary dipped to $369,847, during which time he produced a weekly column—over 50 pieces. The recipient of Edward Snowden’s NSA leak also composes more than 40 tweets a day, on average.

Greenwald’s salary peaked in 2015, hauling in more than $518,000, money that supports an envious life in a gated community on the edge of Rio de Janeiro. Betsy Reed, editor in chief of The Intercept, earned $309,243 in 2016 and $368,249 the year after. Overall, The Intercept spent $9.3 million in salaries in 2017, up $1.4 million from the year before. (Jeremy Scahill, an Intercept cofounder, earned $349,826 in 2015, the last time his compensation was included in a disclosure.)

While the salaries at the top may not be unheard of in media, they are large for digital media and noteworthy in the world of progressive, nonprofit journalism. In 2017, Mother Jones, another left-of-center news outlet, paid its DC bureau chief David Corn $171,298 in reportable compensation; Clara Jeffery, vice president and editor-in-chief of the magazine, earned just under $200,000.  At The Marshall Project, a nonprofit news site focused on criminal justice reform, the highest paid employee is managing editor Kristen Danis, who earned $198,850, according to its latest 990 filing; Bill Keller, a former executive editor at The New York Times, made $178,675 as the site’s editor-in-chief. (Keller is retiring, a spokesperson noted.)

At the Omidyar-funded news organization, salaries have been an issue even before there were layoffs.

“I was recruited to work with First Look before it was publicly announced,” Marcy Wheeler, a national security journalist best known for her coverage of Robert Mueller’s investigation into Russia and the Trump campaign, wrote in a January 2018 essay. “The initial discussions pertained to a full-time job, with a generous salary. But along the way—after Glenn and Jeremy Scahill had already gotten a number of other people hired and as Pierre Omidyar started hearing from friends that the effort was out of control—the outlet decided that they were going to go in a different direction. They’d have journalists—Glenn and Jeremy counted as that. And they’d have bloggers, who would get paid less.” That discrepancy, and the indignity of being treated as a less-than-full journalist, led to her resignation. (The base salary at First Look is $55,000, according to its contract with WGAE.)

Omidyar, with a net worth of $11.2 billion, does not seem inclined to cut salary costs at the top. In a statement provided to CJR prior to the cutbacks in staff, a First Look spokesperson says the company would be fine. “We are grateful for the ongoing financial support of Pierre Omidyar,” the statement said. The company also disputed the notion that a lack of support from others beside him would affect either its output or First Look Media Works’s—and hence, the Intercept’s—tax status. “We anticipate that it will continue to qualify as a public charity in the coming years,” the statement said, adding that “any future change to our public charity status would have no impact on our public operations or activities, our commitment to independent journalism or the type of work we support.”

In order to maintain its status as a “public charity,” First Look Media Works must receive “a substantial part of its support from a government unit or from the general public,” according to the Internal Revenue Service. Specifically, it must receive 33.3 percent of its support this way over five years; barring that, 10 percent, with a good enough explanation (“facts and circumstances”). If it were to lose this status, First Look Media Works would become a “private foundation,” and subject to rigorous scrutiny from the IRS.

Private foundations also are required to distribute 5 percent of their assets every year for charitable purposes; in 2017, First Look gave away 3.6 percent of its $25.9 million, and it could conceivably claim its salaries are part of its charitable giving. Foundations must also pay a 1 to 2 percent excise tax on investment income.

Of the $90 million in total disclosed support it has received, $87 million has come from Omidyar, meaning just 2.7 percent of its revenue can be characterized as “public support.” The level of non-Omidyar money to the non-profit side is indeed rising—6 percent in 2017—but First Look Media Works will require there to have been a lot more in 2018 if it wishes to reach the IRS’s more charitable 10 percent threshold.

Omidyar primarily supports First Look Media Works’s operations with transfers of stock, a common method of supporting non-profit organizations that allows the donor to avoid capital gains taxes while deducting the transfer as a charitable donation. A charity that receives stock as a gift can sell it without paying taxes, either. In 2017, two such donations were made, worth $12.7 million at the time. The names of those companies are whited out on that year’s financial disclosure, along with the name of the donor, but previous years’ filings show Omidyar donated hundreds of thousands of shares in eBay and PayPal. Including 2017, those gifts were worth just under $58 million at the time they were transferred.

It will be difficult, but not impossible, for the math to work here. If Omidyar withheld all financial support in 2018, as he did in 2014, and public support increased by 400 percent—from about $1 million a year to $4 million—the company might be able to hold on to its status as a charity, if just barely. First Look Media declined to say how much its patron or the public gave last year, though layoffs, anywhere, are a clue that not everything has gone according to plan.

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Charles R. Davis is a journalist in Los Angeles. He has reported on Congress for public radio and his writing has been published by outlets such as The Daily Beast, The Guardian, The Intercept and The New Republic.