Kirk wanted that plane.3
He arranged to pitch his idea to Douglas executive Jackson R. McGowan, a familiar face to Kirk. They knew each other casually, having negotiated a couple of DC-3 deals in the past when McGowan was a Douglas vice president for sales. He was now vice president and general manager of the entire aircraft division where DC-8s were built.
McGowan was skeptical. A supplemental air service paying five million for a jet? Was he serious? But he knew Kirk’s reputation. He knew his credit history. He knew his track record. And Kirk’s quiet, controlled excitement describing his plans for the Jet Trader made sense. It got McGowan excited, too. There was even an escape hatch, a Plan B. If government contracts were slow or failed to materialize, Kirk could lease the plane to a commercial carrier. The Douglas exec agreed with Kirk—it was a good bet. And he wanted a piece of it.
McGowan crafted a special deal for N8008D (a.k.a. Fuselage No. 1), the upgraded Jet Trader. Kirk came up with some cash. Bank of America came through with the loan of about $2 million. And Douglas Aircraft Company financed the balance—an unprecedented move at the time—of about three million dollars.
On his signature alone, Kirk had assumed a personal debt load of nearly five million dollars. Default would wipe out everything he had built. Failure would give him a taste of his father’s desperation back in those final days at Weedpatch.
But Kirk the gambling aviation executive was going all in.
The Jet Trader deal closed in June and Kirk moved quickly. He turned to Glenn A. Cramer, a sales executive at Lockheed and leading figure in the postwar charter business, and lured him over to TIA—making him president of the company. Cramer’s mandate was to keep the meter running on their DC-8, keep it making money.
The big jet’s first steady work was flying high-priority military loads from Travis Air Force Base in Northern California to Guam. More contracts followed. And just like Kirk envisioned, TIA was scooping up the cream of new defense contracts. In its first partial year of operation, the Jet Trader single-handedly propelled TIA from earnings of a quarter-million dollars to $1.1 million. The company’s net value surged into the multimillions of dollars.
To Kirk’s everlasting relief, he managed to avoid sharing ownership of the airline or any of his businesses with the likes of Charlie the Blade or his crowd. He would later acknowledge to a friend that he had on occasion during that period been tempted by unspecified but shadowy moneymen.4 In this case, history confirms that Kirk did it his way—not only protecting his personal reputation, but also leaning heavily upon it.
As for Harold Roth, the Long Island businessman, he was indicted soon after the Kerkorian meeting. He pleaded guilty to making illegal loans to a Teamsters Union official. He was also sued along with others for $41 million in Brooklyn federal court for looting his own vending machine company.5 He was further accused of using Valley Commercial to fraudulently transfer funds to his own use. Roth resigned and his companies were placed under court supervision.6
There would never be any questions about who controlled Trans International Airlines. It was Kirk’s company—lock, stock, and DC-8. That is, until a stodgy old Indiana-based carriage-and-car-making company made him an offer he couldn’t refuse.
11
His First Million
Fall of 1962
Oakland, California
Sherwood Harry Egbert, the president of Studebaker Corporation, had flown out from South Bend, Indiana, to make a deal. He was an athletic, six-foot-four man on a mission—and in a hurry—to save his company through diversification. Studebaker already had a stylish new car called the Avanti and new investments in makers of a commercial ice cream refrigerator and other small appliances. Now Egbert and the board wanted Trans International Airlines.1
With the Jet Trader now flying mostly out of Northern California, TIA had shifted its operations center to the San Francisco Bay Area. That’s where the man from Studebaker found Kirk. The two men had met before as twentysomething private pilots on some forgotten tarmac in Los Angeles. This time, in their forties, they were sitting down together as young captains of industry.
Kirk had shrugged off the carmaker’s initial buyout feelers, but he also said he had time to talk. The aggressive Egbert took that as an invitation to negotiate. He plunged into discussions unaware of what a favor he was doing for the debt-sensitive Kerkorian.
It wasn’t that Kirk was worried or even mildly anxious about being on the hook personally for the $5 million DC-8 owned by his company. New business with the Military Air Transport Service (MATS) already exceeded expectations. But big debt deprived Kirk and TIA of room to maneuver, to take advantage of other investment opportunities, to expand, or to withstand unforeseen economic slowdowns.
The plane and TIA were insured against a catastrophic accident, but Kirk was a sitting duck in the event of any business slump. A forced sale of the Jet Trader under such conditions most likely meant bankruptcy. Debt is what broke his father four decades earlier. Kirk pondered ways to minimize his personal exposure to financial ruin. And then, Studebaker came knocking.
Egbert came prepared to make concessions. Kirk was a classic self-made entrepreneur who ran his own company. He wasn’t going to relish having a boss. Egbert assured him that Studebaker wanted Kirk to continue running the air service. Kirk would be a corporate vice president and the president of Trans International, a Studebaker subsidiary. Kirk’s poker face disclosed nothing.
Egbert said that Kirk would receive more than 120,000 shares of Studebaker stock, then valued at about $8.25 per share. The deal would make Kirk a millionaire, at least on paper. Egbert agreed to a proviso that if stock prices sagged, more shares would be added to guarantee Kirk’s sale price at a floor no lower than $950,000. Studebaker also would compensate Kirk with additional annual shares for managing the operations.
And as Kirk acted the role of “reluctant bride,” Egbert wrapped up his offer with the promise of a brand-new Avanti every year. And, of course, Studebaker would assume responsibility for Kirk’s DC-8 debt.
Kirk had everything he wanted, plus his first million dollars—and a new Avanti. The total deal was worth about $10 million.
The honeymoon didn’t last long. Accountants and executives in South Bend questioned marketing strategies and even the smallest expenses. The struggling carmaker—only a few decades removed from manufacturing beer wagons for Anheuser-Busch and its Clydesdales—seemed wholly unprepared for competition in the jet age.
The board of directors imposed cost-control measures requiring preapproval by the full board of any TIA expenditure over $50,000. Kirk’s accountant, Arnold McGraw, called to raise some practical concerns: “What do I do if there’s a plane stranded in Guam, and I need to buy a $400,000 engine right away?” The answer: a long silence. Studebaker accountants had no idea that a DC-8 engine could cost so much. By comparison, a new Avanti engine went for less than $400.
Sometimes Egbert called Kirk directly to complain about costs, or whatever. On one occasion the exchange went something like this:2
Egbert: “What the hell do you think you’re doing?”
Kirk: “What the hell do you think you know about running an airline?”
After so many years without a boss, Kirk’s midlife encounter with supervision and second-guessing turned out to be about as welcome as a patch of moderate to severe turbulence. But intrusions from South Bend declined as the able Glenn Cramer took on more of TIA’s daily operations.
Kirk wanted it that way. He not only trusted and relied on Cramer’s judgment, but he had also come to appreciate how much more he could accomplish by delegating management decisions. Besides, Kirk had a new passion—gambling on empty tracts of sand, otherwise known as investing in Las Vegas real estate.
To commute regularly between the Bay Area and Las Vegas, Kirk needed a plane. Studebaker owned everything in the TIA fleet, so it was time to buy his own set of wings. He found a twin-engine Cessna 310. Kirk’s first private plane was a sl
eek five-seater that cost him $50,000—almost as much as he’d paid for his entire airline back in 1947.
Coincidentally, perhaps, $50,000 was also how much he might wager in a night or on a single roll of the dice, though Kirk’s casino gambling had changed markedly in the years since the Dunes investment failure. He was more patient now, more disciplined, no longer inclined to chase his losses. The new Kirk came with a plan: whether winning or losing, he walked away once he made his intended bets.
He still relished big risks. And he subscribed to the logic of his friend and casino owner Wilbur Clark of the Desert Inn: “The smaller your bet, the more you lose when you win.”3 Besides, what’s the point—where’s the thrill—winning a small wager? Betting the limit became Kirk’s trademark.
He took a similar approach in real estate investing. After receiving nearly a million dollars in stock from Studebaker at the end of the year in 1962, Kirk turned around and invested most of that fresh income—$960,000—on eighty acres of sand and brush. The property was a potentially prime location near the Dunes and across the Strip from the Flamingo. The trouble was a cluster of small lots along the boulevard held by individual owners and blocking Strip access. Those small lots were unbuildable, but an eighty-acre lot without frontage on the Strip resembled an even bigger white elephant.
“We were taking a gamble,”4 Kirk agreed. But the gambler had a plan. His cash purchase offer was still in escrow when he engaged those owners of small lots in separate negotiations. He offered generous property swaps—as much as four or five acres for virtually useless little plots—that improved everyone’s land value, especially Kirk’s.
No sooner had Kirk taken title to the land now fronting on the Strip than a motel developer from Atlanta rode into town. He was shopping for his own piece of the Vegas gaming market and wanted to build a Roman-themed hotel and casino. He called it the Desert Cabana and guaranteed it would be the biggest and most opulent joint in town. He wanted it on that big corner lot across the highway from the Flamingo.
Jay Sarno, the maestro behind upscale motel developments from Georgia to California, already had financing lined up through personal friendships with Teamsters Union president Jimmy Hoffa and Teamsters Central States Pension Fund honcho Allen Dorfman.
Now he needed to win over Kirk Kerkorian, the Strip’s newest landowner.
They met over dinner on a summer night in 1963. The slim, fit Kirk with his wavy black pompadour had come to listen. The stocky, balding Sarno had come to make a deal. He proposed a lease agreement that would make Kirk a partner in the casino profits. Kirk wanted an old-fashioned lease with monthly payments he could count on in good times or bad. Sarno inhaled his meal and then launched into his pitch: “This is going to be the greatest hotel-casino in the world . . . Everything is going to be top-notch . . . We’ll have the finest restaurant, the best entertainers, the most luxurious rooms . . . People won’t want to stay anywhere else . . . It can’t lose.”5
Kirk was intrigued but unconvinced. His ill-fated Dunes investment had coincided with the end of a Las Vegas building boom that had remained stalled for nearly a decade. Not only was Sarno daring to end that development drought, but he also proposed to do so with an ultraluxury project that was unlike anything seen before on the Strip.
It was a very big play. Kirk wanted to hear more.
They agreed to meet a couple of days later on the Dunes’s new golf course. Kirk preferred tennis. He considered golf a waste of time and a poor excuse for exercise. But from most of the lush fairways, golfers could gaze out beyond the greenery across open desert and see Kirk’s empty lot. Sarno could stop, gesture with his arms and hands to fashion a make-believe high-rise hotel there . . . a swimming pool and cabanas over there . . . and through the magic of his imagination and the force of his enthusiasm pull Kirk ever deeper into his dream.
“I’ve done this before,” he assured Kirk, citing the wide range of his investors—from actress Doris Day to the Teamsters pension fund.6
Kirk agreed to compromise. Final terms of the deal would take months to negotiate, but with assurances of a long-term lease in his pocket Sarno had the green light to round up investors for his $20 million project.
Over dinner at a restaurant in Nashville where Jimmy Hoffa was fighting federal jury-tampering charges, the Teamsters president used a cloth table napkin to scribble a note to Dorfman at the pension fund: “Give Jay Sarno $10 million per JH.”
Then, traveling to Miami, Sarno tracked down an investment group that specialized in airport hotel developments. Burt M. Cohen, then an attorney for the group, agreed to hear Sarno’s proposal and later described the encounter:7
“In walks a little fat guy who looks like a penguin, eyes bulging, a roll of plans under his arm and a commitment from the Teamsters and a long-term lease from (Kerkorian).”
It looked like a shaky deal to Cohen—a lot of debt and hefty lease obligations with a sketchy business plan. After his door shut behind the departing Sarno, Cohen dictated a note to one potential investor: “This afternoon I met with Jay Sarno and reviewed his plans for the Las Vegas hotel. I examined the terms of his lease, his loan commitment, and his business plan. If you put one penny into this deal, I promise I’ll have you committed to a mental institution.”
Undeterred, Sarno moved on, following various dead-end leads to New York and Washington, D.C., before arriving in Baltimore where Nate Jacobson was prominent in the Maryland insurance world. He was also an original owner of the Baltimore Bullets professional basketball team—and a gambler. He agreed to raise the additional $9 million needed for construction. Sarno made Jacobson president of his dream resort.
Back in Las Vegas, Kirk agreed to final conditions. His long-term lease would be subordinated to the Teamsters pension fund loan. Sarno and Jacobson would pay a relatively modest monthly lease of $15,000. Kirk would receive 15 percent of casino profits and have access to his own two-bedroom suite in the new hotel.
It would seem that Kirk was violating his first rule of business—to invest only in ventures he controlled—but he was finally gambling again on the business of gambling.
Members of the Armenian community of central California were among the first to learn about the deal. On September 13, 1963, the Fresno Bee reported that Fresno-born Kirk was providing the land for a multimillion-dollar hotel and nightclub on the Strip tentatively called the Desert Cabana.
Construction was still more than a year and a couple of name changes away. The Desert Cabana would become the Desert Palace but eventually open as Caesars Palace. Kirk was a partner and landlord, licensed by the state gaming commission. The Gambler was now the House.
Kirk’s biggest worry: if Caesars failed, he and the Teamsters pension fund might have to step in and save it. Kirk could end up largely responsible for running a failed hotel and casino. He wasn’t ready for that . . . and he knew it.
12
The Armenian Connection
Early in 1963
The Tropicana Hotel, Gourmet Room
When Kirk and Jean Kerkorian arrived for dinner that night it caused the usual buzz among the service staff. Kirk was known up and down the Strip, in the casinos and the restaurants, as a generous tipper. His table was in a section served by a Persian-Armenian waiter named Emmanuel, an immigrant by way of Chicago. Everyone called him Manny. He greeted the couple with a confident air, saw to their immediate needs, and withdrew to afford them maximum privacy.1
Manny was a pro. He had trained in the Pump Room at the Ambassador East Hotel on Chicago’s State Street. He started as a busboy and worked his way up to waiter while studying math and engineering at nearby Roosevelt College. His old Pump Room boss now ran the Tropicana’s popular Gourmet Room. Manny followed him to Las Vegas where his salary almost supported a wife and two small children. He made a little extra giving private tennis lessons on the Tropicana’s courts.
This was Manny’s first time serving the tanned and polite Armenian businessman and his blond and friendly wife.
Kirk liked a cocktail before dinner—scotch, no ice. His menu favorite was the Dover sole—deboned, please. Manny was especially solicitous to Jean, and he chatted easily with the couple between courses. Kirk wanted to know more about the waiter’s Armenian roots.
Manny was born in Tehran to Armenian parents. He left Iran after twice representing his country in the Olympics of 1948 in London and at the 1952 summer games in Helsinki. At age twenty-two he followed his older brother to Chicago where he married, started a family, and never looked back. His Olympic sport: boxing.
Rifle Right Kerkorian was stunned. He had stumbled upon an Armenian two-time Olympic boxer over Dover sole in the most unlikely of places. It was like finding a long-lost cousin. Kirk treated his waiter with more than a generous tip—he embraced Manny Agassi as “my friend.”
It was the beginning of a special association that would segue naturally from dining in the Gourmet Room to a few lessons months later on the Tropicana tennis courts and beyond.
Kirk had just discovered tennis. What would blossom into a passion was the perfect physical exercise for a middle-aged businessman. It also suited his appetite for competition. And with Manny Agassi, his tennis instruction came with shared tales from their fighting days in the ring. In fact, both men recognized striking similarities between singles tennis and boxing.
Tennis has been called “boxing without the blood.”2 Both sports feature two solitary athletes facing each other alone, relying equally on power and finesse, swinging gloved fists or rackets until one wins and the other loses. Both men savored such lonely struggles. And the friends shared a powerful self-confidence that extended well beyond the lines of any sport.
The Gambler Page 9