The Magic of Cost Shifting – How Big Companies Beat the Working Reporter

After releasing the article on how a New York reporter doubled their money by taking private clients, I was hit with a scenario. “Chris, I went to get private clients, but they showed me invoices they were getting, and they were lower than what I get from my agency! How does anybody make money in this city?” Subsequently I came across an article regarding Veritext’s lawsuit with US Adjustment Corp., and from that lawsuit I was able to get a whole lot of old invoices.

At a glance, most of the invoices seem to be between $3.40 and $3.95, and this is indeed competitive with the rates given to reporters for O+2 work, which usually lands somewhere between $3.25 and $4.25 with no upcharges. For non-NY readers, your O+1 is our O+2. The witness’s attorney customarily gets their copy without charge. For those of you that would like to peruse 200 pages of invoices, enjoy. The rest of you, keep reading.

Just in case anybody missed it, at least one of these invoices is listed at the Cutting Edge Deposition office, a one-star digital reporting outfit. So there’s at least circumstantial evidence that Veritext was linked to or had a relationship with digital reporting services as early as 2015. Note also that there’s basically no difference between the price listed at the digital firm’s office and any other invoice. As old studies have shown, digital reporting is not cheaper.

Obviously, these are all over half a decade old and may not reflect current market rates. Obviously whatever rates USAC was getting were probably discounted for the bulk work in the same way Diamond gave the Law Department great rates. The point stands that companies are finding a way to charge less than the reporter is making. How is that possible?

1. Cost shifting via copies.
2. Zombie behavior.

Cost shifting?
Cost shifting, in this context, is when one party underpays for a service or product, and the cost of that service or product is recovered from another party who is overpaying.

Again, using New York City’s market as an example, an agency could pay a reporter $3.25, $4.25, or whatever rate was agreed upon. The reporter generally makes the majority of that O+2. Where the agencies get their money is typically the copies. Let’s say you send Johnny on a deposition for $4.25 a page, but you give your client a sweet $3.95 rate because they have so much bulk work. A loss, right? Only if the job is an O+2. There’s no statutory cap on copies here that I know of, and copy rates are notoriously bad in New York City, between 25 cents and 50 cents, so a single copy of more than $0.55/page means profit for the company on that job. Just to put this into perspective, I’ve reviewed a Veritext email from the Midwest region that had copy rates in the $3.80 (regular) to $4.80 (expedite) ballpark. The copy rate for officials in New York, who also collect a salary in addition to their pages, has been hovering around a dollar for the last couple of decades. The idea that private sector is not charging more for that is pretty naive. So assuming an original of 3.95/page, a copy sale of 3.80/page, and a payment to Johnny of 4.50/page, the agency is pulling in $7.75/page in revenue. That’s nearly 42% of the money for them for what is essentially a finder’s fee. It also complicates things for Johnny, who can’t promise clients $3.95 unless he’s willing to take a pay cut and gamble on getting copies.

It goes beyond that with what’s called a sliding scale. The sliding scale awards the client, and sometimes the copy purchasers, with a discount dependent on the number of copies sold. Because the reporters are not fighting for their copies, companies have a lot of wiggle room. They can put $8 on a copy invoice. If a lawyer pays it, then they’ve just made $8 a page under the client’s assumption that “court reporters are so expensive.” If the lawyer complains, they can cut that rate down to $4 or $2, tell the lawyer they’re such a great client and getting such a great deal, pay the 25 cents to the reporter, and walk away with significant amounts of money. Think about it this way: Let’s send Sally on an O+6 for a rocking $5.25 a page, original and 4 copy sales at Johnny’s same rates. The agency can charge 2 bucks a page to everyone, walk away with $10 a page, and again make about what Sally is making despite it being Sally that’s doing 99% of the work because binding transcripts really isn’t hard. Again, Sally is stuck in a situation where working on her own might actually make her less money unless and until copy sales come into play. If Sally can’t survive the short-term pay cut, she doesn’t make it to the big bucks that are keeping agency rents paid, and she’s more likely to accept whatever rate the agency wants instead of the best rate her skill can command. And that $5.25 is generous, because prior to the court reporter shortage getting bad, some companies, like Diamond, didn’t even bother to pay all of their reporters copies. So a company like Diamond as it was would’ve been making 60% of the money from the job before factoring in the proofreading fee that some reporters were asked or told to pay.

The darker side of the sliding scale is when companies ask reporters to change their layout or give a discount on multiple copy sales/realtime hookups. There is typically zero guarantee that they are passing on those savings to clients. Think about that the next time you send a job in your preferred layout and an agency asks you to cram it into a new one that widens the margins or changes the page count. The N word can be your friend sometimes. I knew a realtimer who was asked to slide their rate back because of all the parties ordering. Acquiescence meant losing half their money on that job, but failing to acquiesce might’ve meant the entire job being given to someone else. They used the N word, got the job, and made lots of money. Reporters win when they stand up for themselves.

Zombie Behavior? Brains…
Several articles ago I explained the concept of zombie companies. Companies can make money through loans and investors, keeping cash flow positive while losing money and/or earning no profit. Zombies can also be defined as companies that are just barely making their debt obligations. 1 in 5 companies examined by Bloomberg were zombies. In a 2019 Kentley Insights report, 1 in 4 court reporting companies was said to be not profitable. Those that were not profitable lost an average of 10% of their revenue a year. These companies can basically use their investor money to hire people and give customers great discounts. If they obtain large enough market share and run competitors into the ground, they can then jack up their prices monopoly style.

This isn’t a fantasy-land scenario. It’s what Uber did. It gave great discounts and even occasionally gave drivers incentives. It killed the taxi industry as best it could, made itself a fixture in people’s lives, and jacked up the rates while claiming a shortage. Meanwhile, the business model is losing billions of dollars a year. Honestly, I’m more concerned with the cost shifting than I am with the zombies. If companies can’t make money exploiting the “driving” skill, companies are doomed when it comes to a specialized skill like legal reporting. This is a simple calculation. About 80% of America drives and about 0.01% of America court reports. It’s about supply and demand. To me, that says that reporting zombie firms are about 8,000 times less likely to be profitable than Uber, a company which despite ubiquity and billions lost has not managed to turn a profit. But the danger of zombies is evident: They can take up significant market share, impact market rates, and bankrupt other service providers for decades before the money runs out. Again, look at what they did to the medallions. A high of $1 million in sales went as low as $140,000 in recent years, likely thanks to companies that do not even have a sustainable model.

What do we do?
Hope. I’ve been told “what? That’s business! You hate business? They’re not doing anything wrong!” Legally they are probably not doing anything wrong in New York. I’ll concede that much until I have real evidence to the contrary. But morally it’s pretty clear this is wrong. Why are the page rates such a shell game? Why is everything so hidden instead of the yesteryear commission split that reporters made? Why aren’t young reporters being taught the value of the copy and their work? It’s easy to control ignorant people and conclude a lot of companies want reporters to be ignorant so that the companies can continue to leech off of the work of reporters. So to address the morality question, ask yourself how you would feel about me if my mantra was “I need you to be dumb so I can profit off your work.” That would be pretty evil, right? How about if I reduced standard turnaround times so you were always too busy with work to think about the situation and whether you were getting a fair deal? Let’s say I wasn’t evil and circumstances just lined up perfectly for me to profit off your ignorance, and I let it happen. Am I a “good person” yet? Am I “not doing anything wrong?” Sometimes it seems we have this bizarre notion that anything goes in business except standing up and saying “no, this is wrong, I won’t cooperate with this.” I’m still in the process of vetting the following, but I was told by a colleague that reporting companies here in New York City brought on salespeople, the salespeople saw the money to be made in this field, started creating their own companies, killed the union, and from there our rates literally stagnated for about 30 years. In my younger years I was literally told “if you don’t like the way it is, leave.” A good four people that I knew in or around my graduating class of 2010 did leave. It’s been an incredible decade and we are now at the point where people are talking about this stuff pretty freely instead of telling newbies they’re the problem and that they should leave. As I see it, hope and communication are winning us many battles.

I can’t say with certainty where the tolerance to everything that keeps reporter rates down comes from Perhaps it’s all exacerbated by antitrust concerns and the fact that our associations cannot engage in anticompetitive behavior such as group boycotts. Perhaps we see they are silenced, so we mimic that silence. NCRA, for example, could never legally denounce Veritext, US Legal, or Planet Depos in the same way I’m allowed to. Maybe that tolerance is linked to survivorship bias. “I was successful and therefore anyone who is not successful must not be trying hard enough.” Maybe that tolerance is linked to expectations and the Pygmalion effect. “There’s nothing I can do, so I won’t try to change anything, and therefore nothing changes, validating my belief that there was nothing I could do.”

There’s no end to the list of “maybes,” but there is a profound power in spreading knowledge. With knowledge on how the court reporting firms are making their money, everyone from the grizzled four-decade reporter to the newbie graduate can compete. That’s a pretty scary thought for anybody who’s been making money off of reporter ignorance. That’s a scary thought for reporting companies that can’t even make a profit in the current climate. But for the people that actually do the work in this field and the reporter-owned companies, it provides real opportunity. Not so entrepreneurial? You’ve seen now hundreds of invoices and just how much money is in this field. It’s time to ask for your fair share. A typical finder’s fee is something between 5% and 35%. Why should you give up 95% on a copy?

Entrepreneurial? Try subcontracting your O+2 out to your non-entrepreneurial colleagues and grabbing those copy jobs. It may be frightening to lose money on any one job, but if you lose $100 on one job and make $1,000 on another, you put more in your pocket, and as I just showed you, it works out mathematically. You can pay your colleagues well and still make boatloads of money. If you’d like to be added to the list of agencies I compiled so that New York reporters can find you, let me know.

There’s no cheap fix. Industry health is a lot like personal health. Took me a long time to get heavy. It was about a decade of decline until I peaked at 290 pounds. It also took a long time and a lot of reporter apathy to get from the golden age 80s to the nightmare of a field I stepped into where rates were lower in 2010 than they were in 1991. Those of you who saw me at NCRA 2021 saw I’m a lot closer to 240 now and headed in a somewhat healthier direction. Without some communication from people that loved me, I probably would’ve remained hopeless and just kept gaining the weight. Similarly we can rehabilitate this field and make the working reporter’s wallet a lot healthier on average, but it’s going to take consistent effort to get word out to the newbies. The long-term consequence of an informed field is probably more stable pricing for consumers, the people we’re doing all this for to begin with, and I can’t see a single drawback.

Addendum:
As pointed out in a comment below, I neglected to point out that agencies also create a word index or concordance index and charge for those pages. Some firms charge a reduced rate and others charge a full rate. In my past experience, no firm paid the reporter for the index. Since it’s a practice that relates so closely to this topic, I am adding it here.