Trump

by Donald J. Trump

  Before I could move forward, I still had to get financing, architectural approvals, and licensing as a casino operator. More important, I had to decide whether the timing was right to undertake this huge project. Fortunately, I didn’t feel pressed to make any quick decisions. It was true that I had several million dollars invested—including lawyers’ fees, preliminary architectural drawings, staff costs, and purchase and lease of land. But I was very confident that if I wanted to turn around and sell my assembled site to someone else, I’d get a great deal more for it than I’d put in. There are always buyers for the best.

  In the meantime, my first priority was to get licensed by the Casino Control Commission. I’d followed Atlantic City closely enough to know that the licensing process could be very long, very difficult, and very unpredictable.

  Playboy and Hugh Hefner, for example, were turned down for a license because the company had allegedly paid a bribe twenty years earlier in order to get a liquor license for the Playboy Club in Manhattan. When Hefner testified in New Jersey, he took the position that he’d actually been shaken down for a payment, and that neither he nor Playboy had ever been charged with a crime. Even so, his license was denied. The state official who cross-examined Heftier said afterward that several commissioners hadn’t liked Hefner’s demeanor and style on the witness stand. I don’t believe he helped his cause when he walked into the hearing in Trenton, New Jersey, with blazing pipe, silk suit and shirt, and a blond bombshell at his side. The licensing process is very subjective; if his savvy daughter, Christie, had been involved at the time, perhaps the outcome would have been different.

  Much more serious allegations of connections with organized crime had been raised against several other applicants. Caesars and Bally were among them, but nonetheless, they both eventually got licensed. What became clear to me, as I watched the licensing process, was a pattern of something I call bloodletting: in exchange for a license, applicants were regularly being forced to offer up at least one sacrificial lamb. At Caesars World, it was the Perlman brothers, who had to resign from the company, and at Bally it was William O’Donnell. But unlike a large public company, I couldn’t afford to sacrifice anyone. I had to demonstrate an absolutely unblemished background.

  The first thing I did was hire a lawyer to represent me. Nick Ribis was originally recommended by the Newhouse family, for whom he’d done a lot of work. I have great respect for the Newhouses, and when I met Nick, I liked his style. He was probably thirty at the time, but he looked years younger. The first thing I said to Nick was “Look, I’m just not sure a lawyer as young as you are can handle a big project like this.” Nick wasn’t thrown. “To tell you the truth, Mr. Trump,” he said, “I’ve never had a client as young as you who could afford my bill.”

  Nick and I agreed immediately on a strategy. I’d hold back on any construction until we got a decision on licensing.

  In every previous situation, companies who purchased or assembled sites in Atlantic City had begun the licensing process and construction concurrently. Licensing could take as long as construction, and the sooner the casino got built, the faster it could start earning money. It’s perfectly logical—so long as your licensing comes through in the end. But unlike these other companies, I didn’t want to put several hundred million dollars at risk in the meantime. Also, I didn’t want to be in a weak negotiating position with the Casino Control Commission. Once you’ve begun investing huge sums of money, it’s very hard to say no to anything they ask for. Waiting to get a decision on licensing meant paying carrying costs on my land a little longer, and postponing profits, but it seemed more than worth it. To this day not many people or companies are willing to go through the nightmare of licensing in New Jersey, which gives Nevada a big advantage in attracting new investors.

  My strongest card was the fact that construction of new casinos in Atlantic City had come to a complete standstill. State and city officials, I knew, were hungry for new evidence that Atlantic City was still a good investment. Because my credibility as a major builder had been established, I was confident that state and local officials would be receptive to my constructing a major casino-hotel in Atlantic City. I didn’t want to be in the position of pleading with anyone. At the very least, I wanted to deal as one among equals, all with an interest in making the project work.

  By this time, I’d brought my brother Robert aboard to work with me on the project. Unlike me, Robert decided after graduating from college to work on Wall Street—perhaps as a way of getting out from under the family shadow. He started in corporate finance at Kidder Peabody. Three years later, he moved to Eastdil Realty, and for the next five years did corporate real estate finance work. Finally he moved to Shearson Loeb Rhodes, where he set up a real estate finance group and ran it very successfully, until he joined me. I think both of us always assumed that eventually he’d come back to the family business.

  Atlantic City was the perfect opportunity. I was looking at a potential investment of $200 million, in a town 120 miles from New York City, where I couldn’t possibly be hands-on every day. What I needed was someone totally competent, totally honest, and totally loyal to oversee the project. There is nothing to compare with family if they happen to be competent, because you can trust family in a way you can never trust anyone else. I called Robert one evening in May 1980, we talked for several hours in my apartment, and by the next day, he’d agreed to take over day-to-day responsibility for Atlantic City. Among other things, that meant we’d both go for licensing.

  On a February morning in 1981, Robert, Nick Ribis, and I drove to New Jersey for a meeting with the attorney general of New Jersey and the head of gaming enforcement. I was very respectful, but I was also very blunt. I said that I was prepared to make a major investment in New Jersey—my own money, not corporate money—and that I’d already invested several million dollars on my Boardwalk site. What concerned me, I said, was that New Jersey had acquired a reputation for making it very difficult for any developer to do business in the gaming area. Licensing investigations had dragged on for eighteen months and more. Much as I wanted to build a great casino on the great site I’d assembled, I said, I had a very successful real estate business in New York and I was more than willing to walk away from Atlantic City if the regulatory process proved to be too difficult or too time-consuming. The bottom line, I concluded, was that I didn’t intend to invest any more money—or to begin any construction—until I got a decision one way or the other on my licensing.

  The attorney general said to me, “No, Mr. Trump, you’re not right about New Jersey. The licensing process can work here efficiently. I can’t give you any promises about the outcome of your investigation. We may find out that you’re not licensable. What I can promise is that if you cooperate fully, we’ll give you an answer one way or the other in six months.” Then he turned to his director of gaming enforcement and said, “Isn’t that true?”

  The director tried to walk a tightrope. “Well, we’ll do our best,” he said, “but it may take a year.”

  At that point, I jumped back in. “Well, if it takes a year,” I said, “then I’m out of here. I’m prepared to cooperate fully, but I’m not going to sit around twiddling my thumbs waiting for answers.” The attorney general nodded, and his director agreed. It was clear that six months was our timetable, and they would try very hard to meet it.

  The next thing we did was to sit down with the members of the Casino Control Commission staff. In order to build a casino, you need approval on everything from room size to casino layout, from the number of restaurants to the size of the health club. Our intention was to provide the regulators with detailed building plans and architectural drawings well in advance of our construction, so that before we got started building, they’d have a chance to review our plans and tell us what changes they wanted.

  Other operators—experienced in running casinos, but not in building them—hadn’t bothered with this sort of planning. In a rush to get their facilities up and ope
n, many began construction before they got final approvals—only to have the regulators show up and say, “No, this room is too small,” or “No, this slot machine needs to be there instead of here.” From long experience, I know that midconstruction changes are extremely costly and perhaps the key reason so many major projects suffer huge cost overruns.

  With so many regulators and regulations to satisfy, we had one major advantage: the fact that we are not a bureaucracy. In most large public corporations, getting an answer to a question requires going through seven layers of executives, most of whom are superfluous in the first place. In our organization, anyone with a question could bring it directly to me and get an answer immediately. That’s precisely why I’ve been able to act so much faster than my competitors on so many deals.

  Sure enough, the gaming division concluded its investigation and issued its report on October 16, 1981, nearly six months from the day they began. They had lived up to their word. Better yet, both Robert and I got an absolutely clean bill. The Division of Gaming Enforcement recommended licensing both of us.

  My actual licensing hearings weren’t scheduled for several months after the enforcement division report was complete. In the meantime, we managed to get all the necessary approvals for our construction. Among them was permission from the city to build a skyway connection between our facility and the convention center next door. One consequence was that we could build part of our facility over the road and thus end up with one of the biggest hotels in town on one of the smaller sites. Unlike the owners of many of the Boardwalk hotels, we oriented our rooms and restaurants to the ocean. With such beautiful views available, why not take maximum advantage of them?

  The second issue we worked on was financing—which was hardly a given. Most banks had an unwritten policy against making loans in the gaming business, because gaming had an unsavory reputation. My problem, ironically, was almost the opposite. Our reputation among banks was very good, but when it came to the gaming business, we had no track record at all. My solution was to try using that to our advantage. Better to lend to a reputable company with a clean slate, I’d say, than to an experienced gaming operator with a questionable reputation. Also, I said, because we were proven developers and builders, we were in a far better position than most casino companies were to assure any lender that we’d come in on time and on budget.

  Manufacturers Hanover, which had helped finance the Grand Hyatt, was among the banks that had a vague policy against making loans in the gaming business. Nonetheless, they agreed to provide me with funding because of our successful relationship in building the Hyatt. I wasn’t thrilled about the terms they were offering us, but it was hard for me to complain: I was lucky to get financing at all.

  On March 15, 1982, with provisional financing in place and all my architectural and building plans approved, I went to Trenton, New Jersey, for licensing hearings before the Casino Control Commission. Hearings for other companies had sometimes dragged on for six to eight weeks. Shortly after 10:15 A.M. I took the stand. I testified for seventeen minutes. Just before noon, the commissioners voted unanimously to license both Robert and me, as well as our corporate entity, the Trump Plaza Corporation. I was finally on my way.

  Then something totally serendipitous happened. One morning in June, I got a call at my office from a man named Michael Rose. I was impressed. I’d never met the man, but I knew that he was the chairman of Holiday Inns. I picked up the phone, and Rose introduced himself. He was very pleasant, and he said he’d like to come up from Memphis to see me.

  I didn’t even ask the reason. A guy in Rose’s position doesn’t suggest a meeting unless he’s got something worth talking about. Also, I was fairly sure I knew his agenda. I assumed he was interested in buying a property I’d purchased a couple of years earlier, the Barbizon-Plaza Hotel on Central Park South and Avenue of the Americas. I knew Holiday Inns had been looking for a prestigious location in New York City, and I’d let the word out in the real estate community that I might consider selling the Barbizon for the right price.

  A week later, Mike Rose came to see me. Robert and Harvey Freeman joined us. Rose was an impressive-looking guy, tall, well-dressed, and very much the gentleman. I launched right into a pitch about what a great piece of property the Barbizon was, an incredible location, a piece of the rock, nothing like it, how smart he was to come and see me about it. While I really didn’t want to sell it, I said, perhaps I could be convinced in this case. For ten minutes I just ranted and raved while Mike Rose, the chairman of Holiday Inns, sat and listened very politely without saying anything. Finally, looking a little embarrassed, he said to me, “I don’t think you understand, Donald. I’m not interested in the Barbizon-Plaza. I’m interested in being your partner in Atlantic City. That’s what I’m here to talk about.”

  I like to pride myself on rolling with the punches. I had never thought of a partner in Atlantic City, but I jumped right back in and started talking with the same enthusiasm about our plans there. I said that we had the best site on the Boardwalk, that we’d designed the best facility, that we had our approvals and financing in place, and that we planned to be open for business in less than two years.

  Two things intrigued me immediately about Holiday Inns. First, the company had a lot of gaming experience. Second, they had the ability to finance the deal themselves, which could take me off the hook personally. What wasn’t clear to me was why Rose might be interested in a partnership. Holiday already owned one successful casino in Atlantic City, Harrah’s at the Marina. I knew they were interested in a Boardwalk casino, but they had already bought a very costly Boardwalk site, and I’d just assumed that’s where they’d build.

  Nonetheless, I decided to play a little coy. After all, he’d come to see me. “Listen, Mike,” I said, “I have my financing. I have my license, and I have my approvals. Frankly, I don’t need a partner. But what is it exactly that you have in mind?”

  Rose explained that he was interested in my site by virtue of its location, but more important, because of my reputation as a builder who came in on time and on budget. Like most other casino operators, Holiday had experienced endless problems in construction and had run over budget by tens of millions of dollars on Harrah’s Marina. Rose particularly liked the idea, he said, that we were already under construction. The point, Rose concluded, was that Holiday simply couldn’t justify major overruns to stockholders a second time. Making a deal with us, he said, seemed like a good way to marry their management expertise with our ability as builders.

  Rose had a specific deal in mind. We’d build the hotel, they’d manage it, and we’d split the profits fifty-fifty. In addition, he said, they’d put up $50 million of their own money toward construction and reimburse me immediately for approximately $22 million of my expenses up to that point. We also agreed they’d take over responsibility for financing and use the Holiday Inns guarantee to get us a very prime rate. As a final inducement to make the deal, Rose said that Holiday would guarantee me against any operating losses for a period of five years from the date the casino opened and pay me a large construction fee.

  This was almost too good to believe. Several times, I looked over at Robert and Harvey just to see if perhaps I was missing something. They just smiled. By the time Mike Rose left my office, we had shaken hands on the basic elements of a partnership in Atlantic City. It was still subject to the drawing of documents, and to approval from his board of directors. I assumed that they’d exact some concessions along the way. But as long as the basic concept remained intact—no downside for me and a 50 percent share of the upside—it was an extraordinary deal. Better yet, I still believed I was about to enter into a partnership with a quality company, run by highly competent casino and hotel operators. After all, I thought, what the hell did I know about running a huge casino-hotel anyway?

  Once we’d finished our negotiations, the final step was approval of the deal by Holiday’s board of directors. In many situations, board approval of management
initiatives is merely a formality. In this case, I worried that Rose might use his board to help him get out of the deal, or at least force changes in it.

  Rose scheduled his annual board of directors meeting in Atlantic City so that the board would have an opportunity to see the proposed site and also to assess our progress in construction. It was the latter that worried me, since we had yet to do much work on the site. One week before the board meeting, I got an idea.

  I called in my construction supervisor and told him that I wanted him to round up every bulldozer and dump truck he could possibly find, and put them to work on my site immediately. Over the next week, I said, I wanted him to transform my two acres of nearly vacant property into the most active construction site in the history of the world. What the bulldozers and dump trucks did wasn’t important, I said, so long as they did a lot of it. If they got some actual work accomplished, all the better, but if necessary, he should have the bulldozers dig up dirt from one side of the site and dump it on the other. They should keep doing that, I said, until I gave him other instructions.

  The supervisor looked a little bewildered. “Mr. Trump,” he said, “I have to tell you that I’ve been in business for a lot of years and this is the strangest request I’ve ever gotten. But I’ll do my best.”

  One week later, I accompanied top Holiday Inns executives and the entire board of directors out to the Boardwalk. It looked as if we were in the midst of building the Grand Coulee Dam. There were so many pieces of machinery on this site that they could barely maneuver around each other. These distinguished corporate leaders looked on, some of them visibly awed. I’ll never forget one of them turning to me, shaking his head, and saying, “You know, it’s great when you’re a private guy, and you can just pull out all the stops.”