Mr. Sanchez said he didn’t want to “dignify” the Journal’s reporting on the contract he struck. He described the reporting on the contract as “old rumors” from anonymous sources. Mr. Sanchez denied sending “the many penis selfies” but declined to comment on whether he provided photos of Mr. Bezos to the Enquirer.
A spokesman for Jeff Bezos declined to comment. Lauren Sanchez didn’t respond to requests for comment sent through an employee at her company and an Amazon spokesman.
The deal caused arguments at American Media before the Enquirer published its January story about the affair, these people said. A blowup in a restaurant between American Media Chief Executive David Pecker and his general counsel for media led the lawyer to leave the publisher immediately.
The Enquirer approached the Amazon chief for comment on Jan. 7, according to people familiar with the matter. Two days later, Mr. Bezos tweeted that he and his wife MacKenzie were splitting up after 25 years.
The Enquirer’s next print edition wasn’t scheduled for publication for several days, and its editors rushed the Bezos story online that night and into print with a headline: “BEZOS’ DIVORCE! THE CHEATING PHOTOS THAT ENDED HIS MARRIAGE.”
The full details of the deal and the resulting drama inside the tabloid publisher haven’t been previously reported. In February, the Daily Beast reported Mr. Sanchez had leaked the Bezos texts to the Enquirer. Mr. Pecker declined to be interviewed.
Mr. Sanchez, a talent agent who has managed television pundits and reality-show judges, has long been a source for the Enquirer and its top editor, Dylan Howard, the people familiar with the matter said. He has supported President Trump on Twitter and has ties to conservative activists.
Mr. Sanchez began conversations last fall with the tabloid about his sister’s relationship with Mr. Bezos, the people said. The Enquirer by then had already been investigating whether Mr. Bezos and Ms. Sanchez were having an affair, people familiar with the matter said.
Ms. Sanchez, a former television reporter who started an aerial film-production company, was introduced to Mr. Bezos by her husband, Hollywood talent-agent executive Patrick Whitesell. Mr. Whitesell is executive chairman at talent agency William Morris Endeavor Entertainment, whose CEO, Ari Emanuel, is close with Mr. Pecker.
Mr. Bezos and Ms. Sanchez worked together on some projects and began a relationship last year, a person familiar with the matter has said. She and her husband are separated.
As the tabloid publisher began negotiations to buy the materials from Mr. Sanchez in October, Mr. Pecker expressed reservations about publishing a story, the people familiar with the matter said. He was concerned Mr. Bezos would sue, forcing debt-laden American Media to expend resources to defend itself for a story executives believed was unlikely to sell well on newsstands. While breaking a story about Mr. Bezos’ affair would burnish the Enquirer’s reputation for breaking news, its readers are historically more interested in showbiz celebrity scandals.
Mr. Pecker was told by one of his advisers that publishing the story might make it appear he was doing so on behalf of Mr. Trump, who has criticized Mr. Bezos in connection with the Washington Post’s coverage of his administration, one of the people said.
Messrs. Pecker and Trump have known each other for more than 20 years. Federal prosecutors in New York alleged Mr. Pecker in August 2015 told Mr. Trump he would use his publications to aid Mr. Trump’s nascent presidential campaign.
American Media has been in the spotlight since it admitted to making a hush payment on behalf of Mr. Trump. The publisher last year reached a nonprosecution agreement with the U.S. attorney’s office in Manhattan, admitting it paid $150,000 in 2016 to a former Playboy model to suppress her story of an affair with Mr. Trump a decade earlier, using a tactic known as “catch and kill.” Mr. Trump has denied the affair.
Mr. Trump has said he had no knowledge of the Enquirer’s investigation of Mr. Bezos.
The pursuit of the Bezos story came in a period of financial strain for the company. Efforts to refinance over $400 million in debt in the early fall were jeopardized when an underwriter backed out in the wake of America Media’s legal entanglement in the hush-money case, said a person familiar with the company’s finances. The outcome of the crucial refinancing remained uncertain as Mr. Pecker weighed whether to proceed with the explosive story.
During past refinancings, Mr. Pecker had barred American Media publications from acquiring controversial content or stories that could have imperiled the reshuffling of American Media’s debt, said someone familiar with internal discussions at the publisher.
Despite his qualms, Mr. Pecker approved the $200,000 deal with Mr. Sanchez that had been negotiated by American Media’s chief content officer, Mr. Howard; its general counsel for media, Cameron Stracher; and others, said people familiar with contract. The amount—higher than the company typically pays sources—reflected the significance American Media placed on Mr. Sanchez’s information.
In most cases, the company’s source agreements require it to pay for information upon publication. If a story is never published, American Media doesn’t have to pay. By contrast, the contract with Mr. Sanchez stipulated he was to be paid upfront, regardless of whether any story was published, the people familiar with the contract said.
In light of the recently concluded government investigation, Mr. Stracher, the general counsel, inserted an unusual provision into the Oct. 26 contract with Mr. Sanchez to make it clear the deal wasn’t a “catch and kill,” those people said.
If American Media didn’t publish anything within about a month’s time, Mr. Sanchez could sell the information to another outlet and keep the money, they said. The provision stemmed from concern by American Media employees that Mr. Pecker would buy the story and suppress it because of his relationship with Mr. Emanuel, whose partner is married to Ms. Sanchez, said some of those people.
Mr. Pecker’s relationship with Mr. Emanuel had no bearing on the publisher’s decision-making, said people close to Mr. Pecker. A spokesman for Mr. Emanuel said the talent agent had no discussions with Mr. Pecker about the Bezos story before it was published.
As early as October, the Enquirer was trailing Mr. Bezos and Ms. Sanchez to restaurants and hotels and photographing them together, the publication reported. Mr. Sanchez signed the contract with American Media that month, after a few weeks of negotiations, according to one person familiar with the deal.
On Nov. 7, Messrs. Stracher and Pecker went to lunch at Cipriani Wall Street, a restaurant near American Media’s offices, people familiar with the matter said. Mr. Stracher, a media-law specialist who had worked for the company for 11 years, had been interested in expanding his role at American Media and believed going into the lunch Mr. Pecker was going to offer him a promotion, said people familiar with the matter.
As they began their meal, Mr. Pecker launched into a discussion of the Sanchez contract. Raising his voice and cursing, Mr. Pecker told Mr. Stracher he had been unaware Mr. Sanchez had been paid upfront, said people familiar with the encounter. Mr. Pecker said the company didn’t pay sources upfront and demanded to know why Mr. Stracher hadn’t shown him the contract, they said.
Mr. Stracher replied American Media did pay upfront, albeit infrequently, and he routinely dealt with Mr. Howard on contracts. Mr. Pecker told Mr. Stracher if he was unhappy, he could quit.
Mr. Stracher, taking Mr. Pecker up on the suggestion, walked out of the restaurant. By the time he returned to American Media’s offices, less than a 10-minute walk, his keycard had been deactivated, the people familiar with the matter said.
The Wall Street Journal couldn’t determine whether anyone at American Media briefed Mr. Pecker on the contract’s specifics before it completed the deal with Mr. Sanchez. People close to Mr. Pecker said he wasn’t aware the payment was made upfront and felt as if he was being forced to run the story.
American Media paid Mr. Sanchez about a week after the lunch, said people familiar with the deal. By January, after a review of the Enquirer’s reporting by an outside law firm, Mr. Pecker tentatively approved publication of the story, some of these people said. American Media’s refinancing was finally settled on Jan. 3.
The Enquirer’s 11-page spread on Mr. Bezos’ affair featured pictures of Mr. Bezos and Ms. Sanchez together, and quotes from his sexually charged text messages. Mr. Bezos’ security consultant, Gavin de Becker, investigated how American Media had obtained his electronic communications, including whether he had been hacked, and whether its reporting was politically motivated.
Amid reports on alleged links between the Enquirer story and Mr. Pecker’s actions on behalf of Mr. Trump during the 2016 election, American Media’s financial backers at Chatham Asset Management—who had been unhappy about the Bezos coverage—conveyed their displeasure and pressured Mr. Pecker to resolve the matter, said people familiar with the communications. Mr. Pecker pressured his staff to do the same.
Mr. Trump fueled the idea the Enquirer had a political agenda, tweeting Jan. 13: “So sorry to hear the news about Jeff Bozo being taken down by a competitor whose reporting, I understand, is far more accurate than the reporting in his lobbyist newspaper, the Amazon Washington Post.”
In early February, an American Media employee informed Mr. Bezos’ camp Mr. Pecker was “apoplectic” about Mr. Bezos’ investigation, he later recalled in a blog post. Mr. Bezos’ representatives soon received what they viewed as a verbal threat from AMI: The Enquirer would publish more text messages and pictures if he didn’t stop his investigation, Mr. Bezos wrote.
That was followed by an email to Mr. de Becker’s lawyer from Mr. Howard, telling Mr. Bezos in graphic terms of the unpublished material he said the Enquirer held. An American Media lawyer, Jon Fine, emailed proposing a confidential settlement. If Mr. Bezos made a statement he had no evidence politics played a role in the Enquirer story and stopped suggesting it had, the tabloid would withhold the rest of Mr. Bezos’ communications and images, Mr. Fine wrote, according to Mr. Bezos’ blog post. American Media declined to make Mr. Fine available to comment.
In a post on online-publishing platform Medium titled “No thank you, Mr. Pecker,” Mr. Bezos rejected the offer and published the communications sent by American Media, including Mr. Howard’s descriptions of his erotic pictures, stirring a new debate over whether the Enquirer tried to blackmail him.
Mr. Bezos in the blog post also raised Mr. Pecker’s past use of the tabloid to aid Mr. Trump and the executive’s unsuccessful wooing of Saudi investors for an investment in 2017, further fueling the idea the tabloid had engaged in a political attack.
“If in my position I can’t stand up to this kind of extortion, how many people can?” Mr. Bezos wrote.
American Media’s internal investigation, by an outside law firm, is continuing.
—Lukas I. Alpert contributed to this article.
The Wall Street Journal