[Vision2020] Trump's Three Casinos Fail Miserably and Hit Local Businesses and Bond Holders

[Nicholas Gier]

The New York Times, 6/12/16

Note: My poor internet connection here in Maryland prevented me from
copying the entire article.

ATLANTIC CITY — The Trump Plaza Casino and Hotel is now closed, its windows
clouded over by sea salt. Only a faint outline of the gold letters spelling
out T-R-U-M-P remains visible on the exterior of what was once this city’s
premier casino.

Not far away, the long-failing Trump Marina Hotel Casino was sold at a
major loss five years ago and is now known as the Golden Nugget.

At the nearly deserted eastern end of the boardwalk, the Trump Taj Mahal,
now under new ownership, is all that remains of the casino empire Donald J.
Trump assembled here more than a quarter-century ago. Years of neglect
show: The carpets are frayed and dust-coated chandeliers dangle above the
few customers there to play the penny slot machines.

On the presidential campaign trail, Mr. Trump, the presumptive Republican
nominee, often boasts of his success in Atlantic City, of how he outwitted
the Wall Street firms that financed his casinos and rode the value of his
name to riches. A central argument of his candidacy is that he would bring
the same business prowess to the Oval Office, doing for America what he did
for his companies.

“Atlantic City fueled a lot of growth for me,” Mr. Trump said in an
interview in May, summing up his 25-year history here. “The money I took
out of there was incredible.”

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<http://www.nytimes.com/2016/06/12/nyregion/donald-trump-atlantic-city.html?emc=edit_th_20160612&nl=todaysheadlines&nlid=29749741&_r=0#story-continues-1>

His audacious personality and opulent properties brought attention — and
countless players — to Atlantic City as it sought to overtake Las Vegas as
the country’s gambling capital. But a close examination of regulatory
reviews, court records and security filings by The New York Times leaves
little doubt that Mr. Trump’s casino business was a protracted failure.
Though he now says his casinos were overtaken by the same tidal wave that
eventually slammed this seaside city’s gambling industry, in reality he was
failing in Atlantic City long before Atlantic City itself was failing.

But even as his companies did poorly, Mr. Trump did well. He put up little
of his own money, shifted personal debts to the casinos and collected
millions of dollars in salary, bonuses and other payments. The burden of
his failures fell on investors and others who had bet on his business
acumen.

In three interviews with The Times since late April, Mr. Trump acknowledged
in general terms that high debt and lagging revenues had plagued his
casinos. He did not recall details about some issues, but did not question
The Times’s findings. He repeatedly emphasized that what really mattered
about his time in Atlantic City was that he had made a lot of money there.

Mr. Trump assembled his casino empire by borrowing money at such high
interest rates — after telling regulators he would not — that the
businesses had almost no chance to succeed.

His casino companies made four trips to bankruptcy court, each time
persuading bondholders to accept less money rather than be wiped out. But
the companies repeatedly added more expensive debt and returned to the
court for protection from lenders.

After narrowly escaping financial ruin in the early 1990s by delaying
payments on his debts, Mr. Trump avoided a second potential crisis by
taking his casinos public and shifting the risk to stockholders.

And he never was able to draw in enough gamblers to support all of the
borrowing. During a decade when other casinos here thrived
<http://www.nytimes.com/2007/07/06/business/06norris.html>, Mr. Trump’s
lagged, posting huge losses year after year. Stock and bondholders lost
more than $1.5 billion.

All the while, Mr. Trump received copious amounts for himself, with the
help of a compliant board. In one instance, The Times found, Mr. Trump
pulled more than $1 million from his failing public company, describing the
transaction in securities filings in ways that may have been illegal,
according to legal experts.

Mr. Trump now says that he left Atlantic City at the perfect time. The
record, however, shows that he struggled to hang on to his casinos years
after the city had peaked, and failed only because his investors no longer
wanted him in a management role.

There are those here who fondly remember Mr. Trump’s showmanship, the
thousands he employed in a struggling city, and the tens of millions of
dollars in tax revenue his casinos generated.

“He was a great person for the company,” said Scott C. Butera, the
president of Mr. Trump’s company at the time of its 2004 bankruptcy. “With
his oversight, his brand and marketing, he’s really adept.”

Many others were glad to see him go.

“He put a number of local contractors and suppliers out of business when he
didn’t pay them,” said Steven P. Perskie, who was New Jersey’s top casino
regulator in the early 1990s. “So when he left Atlantic City, it wasn’t,
‘Sorry to see you go.’ It was, ‘How fast can you get the hell out of here?’”

It was April 1990, and Mr. Trump was officially opening his third gambling
resort in Atlantic City, the biggest project of his career: the $1
billion Trump
Taj Mahal
<http://www.nytimes.com/1990/04/05/nyregion/behind-atlantic-city-s-glitz-lies-decay-878.html>
.

“It’s truly going to be an incredible place,” he told reporters. “We’re
calling it the eighth wonder of the world.”

The Taj was certainly of outsize proportions: Its 42-story tower was New
Jersey’s tallest building, and the casino was the world’s largest.

In a remarkably short time, Mr. Trump had become a commanding figure in
Atlantic City, with his casinos accounting for nearly a third of its
gambling revenues and employing more than 8,000 people.

Trump Plaza came first. In the early 1980s, Mr. Trump gained control of a
prime spot on the boardwalk
<http://www.nytimes.com/1982/03/16/nyregion/trump-assured-casino-license-one-snag-is-left.html>.
Unable to get financing to build a casino, he forged a partnership with
Harrah’s Entertainment, a national gambling operator.

Harrah’s agreed to provide Mr. Trump, who did not put any additional money
into the deal, with $220 million in financing to build the project, to pay
him a $24 million construction management fee and to give him half the
profits.

The 39-story Harrah’s at Trump Plaza
<http://www.nytimes.com/1984/05/15/nyregion/10th-and-largest-casino-opens-in-atlantic-city.html>
opened in 1984.

>From the start, the partners were at odds over its marketing and whose
<http://www.nytimes.com/1985/08/13/nyregion/trump-and-harrah-s-feud-over-name.html>name
should be paramount
<http://www.nytimes.com/1985/08/13/nyregion/trump-and-harrah-s-feud-over-name.html>
.

“It wasn’t a well-designed partnership,” said Philip G. Satre, the retired
chairman of Harrah’s. “We were a big company with an institutional approach
to running a business, and he was a real estate entrepreneur who kind of
shot from the hip
<http://www.nytimes.com/1984/04/08/magazine/the-expanding-empire-of-donald-trump.html>
.”

Then Mr. Trump bought Hilton’s nearly
<http://www.nytimes.com/1985/04/28/nyregion/trump-buys-hilton-s-hotel-in-atlantic-city.html>
completed
casino in the marina district
<http://www.nytimes.com/1985/04/28/nyregion/trump-buys-hilton-s-hotel-in-atlantic-city.html>
for $320 million, calling it Trump Castle. His company issued $352 million
in bonds to finish construction and open the casino, and tacked on an
additional $32 million. That casino opened in 1985 and competed directly
against his partner’s first casino, Harrah’s Marina.

The following year, Harrah’s scuttled its partnership with Mr. Trump and
sold him its stake in Trump Plaza for more than $220 million.

Next Mr. Trump went after the biggest casino of all, the Taj Mahal, which
Resorts International
<http://www.nytimes.com/1983/11/13/business/resorts-international-ups-the-ante.html>,
builder of Atlantic City’s first casino, was erecting. After buying a
controlling interest in Resorts from the estate of its founder, Mr. Trump
battled the talk show host Merv Griffin
<http://www.nytimes.com/1988/05/28/business/rift-ended-by-trump-and-griffin.html>
for control of the company.

In the end, Mr. Griffin got the company, while Mr. Trump won the
still-unfinished Taj Mahal.

Even before the Taj opened, the New Jersey Casino Control Commission was
concerned about the casino’s viability given its rapidly escalating costs
<http://www.nytimes.com/1990/04/08/business/trump-s-taj-open-at-last-with-a-scary-appetite.html>
and considered revoking its operating license. Regulators closely monitored
the financial performance of the Trump casinos and the developer’s empire.

Mr. Trump told the commission in 1988 that he could rein in expenses,
because conventional lenders were lining up to give him money at low
interest rates. He said he abhorred junk bonds, which were then popular,
because they carried a bigger risk of default and thus came with higher
interest rates.

Within months, he reversed course, issuing $675 million worth of junk bonds
<http://www.nytimes.com/1988/07/06/business/finance-new-issues-trump-taj-mahal-funding-plans-675-million-offering.html>,
with a 14 percent interest rate, to finish construction and get the Taj
open. In recent interviews, Mr. Trump has said that with each financing he
routinely took money out of the casinos to invest in Manhattan real estate.
Total debt on the Taj exceeded $820 million.

Less than two weeks before the casino opened, Marvin B. Roffman, a casino
analyst at Janney Montgomery Scott, an investment firm based in
Philadelphia, told The Wall Street Journal that the Taj would need to reap
$1.3 million a day just to make its interest payments, a sum no casino had
ever achieved.

“The market just isn’t there,” Mr. Roffman told The Journal.

Mr. Trump retaliated, demanding that Janney Montgomery Scott fire Mr.
Roffman. It did.

“It was doomed way before the start,” said W. Bucky Howard, who was
promoted by Mr. Trump to president of the Taj five days after it opened, in
a recent interview. “I told him it was going to fail. The Taj was
underfunded.”

Almost immediately, Mr. Trump had trouble making the debt payments on the
Taj and his other casinos. It was also clear that the Taj was cannibalizing
the Castle and the Plaza
<http://www.nytimes.com/1990/04/29/business/behind-taj-glitz-a-declining-cash-flow.html>,
whose combined gambling revenues dropped by $58 million the year it opened.

After more than tripling as new casinos opened through the 1980s, gambling
revenues in Atlantic City flattened in 1990, rising by just 1.35 percent,
as gamblers grew more cautious in light of a national recession. All were
hurt, recalled Mr. Perskie, the casino regulator, but none were in the
This is a pattern with Trump. He farms out his name, builds a castle around
himself and then walks away free and clear when it all fall in....

Mr. Trump “put a number of local contractors and suppliers out of
business,” said Steven P. Perskie, New Jersey’s top casino regulator in the
early 1990s.
-were hurt, recalled Mr. Perskie, the casino regulator, but none were in
the catastrophic financial shape of Mr. Trump’s.

At the same time, Mr. Trump’s real estate empire in Manhattan, where the
recession cut property values, was also failing.In an August 1990 report,
New Jersey regulators noted the “sheer volume of debt” on Mr. Trump’s
holdings: $3.4 billion, including $1.3 billion on the casinos and $832.5
million in loans personally guaranteed by Mr. Trump. Regulators warned then
that “the possibility of a complete financial collapse of the Trump
Organization was not out of the question.”

The Taj Mahal missed its November debt payment. The Castle was also late.

By December 1990, when Mr. Trump needed to make an $18.4 million interest
payment
<http://www.nytimes.com/1991/01/22/business/trump-aided-by-a-loan.html>,
his father, Fred C. Trump, sent a lawyer to the Castle to buy $3.3 million
in chips, to provide him with an infusion of cash. The younger Mr. Trump
made the payment, but the Casino Control Commission fined the Castle
$65,000 for what had amounted to an illegal loan.

As all of his ventures neared collapse
<http://www.nytimes.com/1990/06/07/business/empire-risk-trump-s-atlantic-city-debt-forcing-trump-play-for-higher-stakes.html>,
Mr. Trump’s lenders insisted that he submit a business plan, appoint a
chief financial officer for the Trump Organization and sell, among other
things, the Trump Shuttle airline, his yacht
<http://www.nytimes.com/1990/05/11/business/trump-is-reportedly-selling-yacht.html>
and his stake in New York City’s Plaza Hotel, which also filed for
bankruptcy protection. They also put him on a $450,000-
<http://www.nytimes.com/1990/06/27/business/banks-approve-loans-for-trump-but-take-control-of-his-finances.html>
a-
<http://www.nytimes.com/1990/06/27/business/banks-approve-loans-for-trump-but-take-control-of-his-finances.html>month
budget
<http://www.nytimes.com/1990/06/27/business/banks-approve-loans-for-trump-but-take-control-of-his-finances.html>
for personal and household expenses.

Just over a year after it opened, the Taj Mahal was in bankruptcy court,
followed in 1992 by both the Plaza and the Castle. In the plan that was
worked out, Mr. Trump ceded to the lenders a 50 percent stake in the
businesses in return for lower interest rates. The lenders agreed to defer
certain principal and interest payments and hold off on personal claims
against Mr. Trump for five years. But there was little or no reduction in
the enormous debts that would plague his gambling empire far into the
future.

Mr. Trump now says he looks back on the period as his golden era in the
casino business.

“Early on, I took a lot of money out of the casinos with the financings and
the things we do,” he said in a recent interview. “Atlantic City was a very
good cash cow for me for a long time.”

Others were hurt.

“He helped expand Atlantic City, but he just did not put the equity into
the projects he should have to keep them solvent,” said H. Steven Norton, a
casino consultant and a former casino executive at Resorts International.
“When he went bankrupt, he not only cost bondholders money, but he hurt a
lot of small businesses that helped him construct the Taj Mahal.”

Beth Rosser of West Chester, Pa., is still bitter over what happened to her
father, whose company Triad Building Specialties nearly collapsed when Mr-

A society grows great when old men plant trees whose shade they know they
shall never sit in.

-Greek proverb

“Enlightenment is man’s emergence from his self-imposed immaturity.
Immaturity is the inability to use one’s understanding without guidance
from another. This immaturity is self- imposed when its cause lies not in
lack of understanding, but in lack of resolve and courage to use it without
guidance from another. Sapere Aude! ‘Have courage to use your own
understand-ing!—that is the motto of enlightenment.

--Immanuel Kant
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