Kirk had wanted a tax-free stock transfer. The deal was fashioned around a convertible, preferred stock in Transamerica that would be more like common stock and retain its tax-free benefits. With a dividend and other sweeteners, this newly crafted equity would be worth 20 percent more than equivalent common stock. It would be a new kind of stock that had never before been traded. And, as it turned out, the NYSE wasn’t interested in getting that creative at the moment.
The deal was off as originally negotiated. A final meeting was scheduled for the next morning when both sides could reconvene with any suggestions as to how or whether to proceed. Kirk and Transamerica president John R. Beckett would be across the table from each other one more time.
Kirk’s group spent the afternoon gaming out various scenarios. The advisers included two lawyers from Los Angeles, TIA president Glenn Cramer, Walter Sharp from Bank of America, and Fred Benninger, a recent addition to Team Kerkorian from Flying Tiger Airlines where he was general manager and executive vice president. Benninger, a former accountant, was Kirk’s man running hotel development in Las Vegas, but this was a more pressing matter. All five advised Kirk of drawbacks to every option.
Asking Transamerica to increase its stock swap offering by 20 percent to cover Kirk’s lost benefits was the most obvious option. But that invited a reduced counteroffer. And any eagerness to get the deal done with a compromise might indicate weakness or worse . . . desperation. That could invite second thoughts, almost certain delay, and put the entire transaction in jeopardy.
Kirk abruptly ended the group analysis. He was going for a walk around the block, he said. No one else moved. No one else was invited. And the door slammed behind him. About thirty minutes passed. It was getting late in the afternoon when the waiting advisers heard Kirk letting himself back into the suite. He had made up his mind.
“We’re going to make a deal,” he said. The meeting was over. Just how Kirk planned to broach the delicate matter of a compromise, he didn’t say. And nobody asked.
The next morning Team Kerkorian was early, as always, arriving as one for an 11 a.m. meeting at Transamerica’s headquarters on Montgomery Street. The group was led to a windowless third-floor conference room where men in dark suits waited at a massive oak table. All eyes were on Kirk as he took the chair across from Transamerica’s president. He said nothing as his colleagues took their seats. His poker face revealed nothing. Finally, his gaze settled on Beckett, and in the silence after the last squeak and scuff of a chair, Kirk said: “Well, Jack—I guess we’re not going to be able to make a deal.”
Kirk stood, scooped up the file folder on the table in front of him, and reached out smiling to shake hands with Beckett.
It had taken Beckett a moment to process what was happening. He may have been expecting Kirk to suggest the most likely alternative—the extra common stock to cover his tax liability. But, no, Kirk was walking out.
“Wait a minute!” The Transamerica president waved off the handshake. “We can give you a deal and give you the same value we talked about.”
Kirk sat down. His advisers who were rising to follow him out the door sat down.
Transamerica offered to provide extra common stock to cover Kirk’s increased tax liability. Beckett was offering the same terms that Kirk hoped for—terms that might have betrayed weakness had Kirk been forced to request them himself. Now, Transamerica was trying to convince Kirk to take the very deal he’d wanted all along.
Back at the Fairmont bar later that evening one of Kirk’s lawyers congratulated him on “playing a helluva poker hand.” There was general agreement among the celebrants that Kirk must have ice water in his veins.
“They thought you had aces back to back,” chortled attorney Ronald J. Del Guercio. “And all you had in the hole was a deuce. They really thought you were ready to walk out.”
Kirk was amused. But if his young lawyer was probing to find out whether Kirk really intended to walk out, he never got an answer. It didn’t really matter. Kirk’s theory on walking out of negotiations was adaptable to almost any occasion. “You can always walk back in again,” he used to say.
Closing the deal left Kirk the single largest shareholder of Transamerica stock. The little charter airline he bought for $60,000 with the help of a $5,000 loan from his sister, Rose, had returned more than $100 million in that one transaction. Kirk could also expect a seat on the TA board of directors.
Shortly before the final signatures on the deal, Beckett took Kirk aside for a heart-to-heart. The historically conservative Transamerica Corporation had a problem with Kirk’s heavy involvement in Las Vegas. The gambling business was . . . well, embarrassing to the stodgy bunch in San Francisco. Would Kirk mind putting his TIA man Cramer on the board instead?
In truth, Kirk wanted as little to do with board meetings as possible. The freshly minted megamillionaire from Weedpatch with his eighth-grade education and a budding empire in Las Vegas agreed not to seek his own seat on the board, happy to let Beckett off the hook without so much as a blush.
Turning his attention back to Las Vegas and the challenges of developing the International Hotel, Kirk was hit almost immediately by stunning news. Howard Hughes announced to the local media his plans for a mammoth expansion of the Sands.4 He proposed a $150 million makeover adding four thousand rooms and a posh transformation of the Sands casino.
“It is our hope that this hotel will be something completely unique and novel,” Hughes wrote in a three-page typed news release, “like nothing anyone has ever seen before—a complete city within itself.” He promised entire floors dedicated to shops, family amusements, the world’s largest hotel bowling alley, and an indoor golf course. In a contest of superlatives, Hughes had emphatically raised the ante.
Well before Kerkorian’s project was finished—if that day ever came—the Hughes property would surpass it as the most luxurious . . . the biggest . . . the best . . . the priciest. In fact, the Hughes press release alone could scuttle Kirk’s chances. And unbeknownst to Kirk, that was part of the Hughes design all along.
In a separate handwritten note to aide Maheu, Hughes confided: “The disclosure of my new [$150 million] establishment will make it much harder for [Kerkorian] to get financing.”5
Prospects of a sudden addition of four thousand rooms also raised prospects of a glut that could swamp the entire Las Vegas market. It raised the risk factor especially for Kirk. His planned off-the-Strip giant was considered a pioneering venture and its unprecedented fifteen hundred rooms a likely test of market capacity. Already difficult-to-secure construction financing might have to be shopped among the likes of loan sharks or the mobbed-up friends of Jimmy Hoffa.
An unusually shaken Kirk turned to publisher friend Hank Greenspun of the Las Vegas Sun for counsel. They had a series of evening conversations. The newspaperman was sure his friend had “spent a few sleepless nights worrying about Hughes’s new plans.” Kirk acknowledged he was pondering whether to fold and walk away from the International, but Greenspun pressed him to call his rival’s bluff. Hughes, he said, “doesn’t build—he merely buys.”6
In the end, Kirk bet on that assessment, shoving more of his chips onto the table. Groundbreaking ceremonies went on as planned. Now he needed to raise between fifty and sixty million dollars to complete the project. He flew off to New York with Fred Benninger where more doors were slammed in their faces. They managed to land about half the construction cost closer to home when the Nevada National Bank of Commerce accepted his nearly sixty-five-acre site as collateral. That would get it half-built. Kirk was going to raise the rest on the fly. It was a financial high-wire act—without a net. The International Hotel’s grand opening was set for midsummer of 1969.
At the Sands, nothing happened—no architects hired, no plans submitted for approval, no dates set for groundbreaking or completion. After a few months, it was clear that the “unique and novel” Hughes plan was dormant or abandoned. It was, however, a continuing centerpiece of Hughes’s cam
paign to stop Kirk and the International Hotel.
In another note to Maheu, who played tennis with Kirk on occasion, Hughes discussed his latest ploy.
“Please tell Kerkorian that I postponed the new Sands because I learned of the possibility that the (underground nuclear bomb) testing would be resumed in this area on a heavier than ever basis,” Hughes wrote.7 The recluse also wanted Kirk to be convinced that architectural and geological experts were advising Hughes against building high-rise structures while such testing continued.
At 7 a.m. on April 26, 1968, a 1.3-megaton blast—the largest underground explosion recorded to that date—was felt in four states and the Desert Inn penthouse where Hughes said he gripped the sides of his bed in fear. His appeals to President Johnson and the AEC had succeeded only in delaying the test for forty-eight hours. Now Hughes was hoping to persuade Kirk to suspend construction of the International to show solidarity against the common threat of more bomb tests.
“Please further tell him that the high rise of our Desert Inn, only nine stories, has been very definitely damaged in a number of places,” Hughes continued with growing exaggeration, “and that we firmly believe the Mint, the Sahara and the Riviera have also been damaged very seriously.”8
It wasn’t true, but Hughes suggested his aide go even deeper into realms of fiction, telling Kirk the lie that other hotel owners were keeping secret widespread structural damage. Maheu should explain, said Hughes, that the silent owners didn’t want to scare away customers fearful that Las Vegas hotels were unsafe and “might come piling down on top of them” from future test-induced quakes.
Kirk kept building.
Howard Hughes had moved into Las Vegas after a midnight arrival by private railcar in late November 1966. He was delivered to the Desert Inn on a stretcher. The town was packed with Thanksgiving holiday gamblers. Hotels were overbooked. It took the personal intervention of Teamsters boss Jimmy Hoffa, making a call to his friend Moe Dalitz who ran the Desert Inn, to free up rooms and the ninth-floor penthouse. The $250-a-night suite reserved for high rollers was available for only ten days. They moved in . . . and stayed . . . and stayed.9
When Hughes was still there four months later, Dalitz was fuming and threatening eviction. Hughes was hardly a high roller. He never ventured into the casino. He never left his room. And while his entourage had grown, taking over the top two floors of the hotel, many were Mormons. They weren’t big gamblers, nor did they spend big at the bar. So, even with such high occupancy, Dalitz was counting his losses.
For Hughes, who was once treated to a ticker-tape parade in New York for an audacious three-day flight around the world, who once ran the RKO film studios and romanced the most glamorous leading ladies of his day, and who just sold his controlling interest in Trans World Airlines for a staggering personal fortune, the primary goal of his life in March 1967 seemed to be keeping his bed in the Desert Inn. So he bought it—his ninth-floor penthouse and the entire hotel—for $13.2 million.
The transaction turned out to have enormous tax advantages. Hughes had just deposited a check for $546.5 million on that TWA sale—what he called “the largest check that any single individual ever carried out of Wall Street.” It was generating “passive” interest income in the tens of thousands of dollars every day—income with no offsetting costs to reduce his substantial tax liabilities. By contrast, the hotel and casino business produced “active” income that could be written off against various investments and operating costs.
The Desert Inn casino purchase sheltered so much of his windfall and interest income that Hughes declared a new investment strategy: “Hell, let’s buy them all.” Maheu immediately went shopping and by the end of his first year in town Hughes had bought five casinos on the Strip, including the Sands. He was also promising huge financial gifts to the University of Nevada for a medical school, new jobs, and industry to spur the local economy and development of a new international airport capable of handling future supersonic aircraft.
While Hughes was making headlines with every new purchase, Kirk drew only modest attention when in August 1967 he bought the Flamingo. It was a strategic move. He wanted a moderately sized hotel and casino where he could train a staff to run the biggest hotel in the world—once the International was ready for business.10
Kirk also was still wooing Alex Shoofey to finally quit Sahara, then one of the most successful hotel and casino operations in the state. The Flamingo purchase provided immediate employment for Shoofey and any staff he could recruit through the next two years while the International was being built.
Shoofey was still a bit skeptical when Kirk offered him a 10 percent piece of the Flamingo profits. “Hey, what are you talking about? Ten percent of zero is zero,” he protested.11
The Flamingo that Bugsy Siegel built in the 1940s had been through various owners, renovations, and expansions, but over the years one thing remained the same—the skim. Payoffs, kickbacks, and underworld favors left big gaps in its profit margin. The Internal Revenue Service, among other federal agencies, was curious enough to be secretly investigating where all that cash was going. They also were tracking a $200,000 “finder’s fee” paid to mob financier Meyer Lansky for his behind-the-scenes role in a previous sale of the casino—fees paid through a charitable foundation headed by an unwitting U.S. Supreme Court justice, William O. Douglas. Investigators were closing in.
Kirk didn’t know anything about secret federal probes when he penciled out what he thought should be a reasonable rate of return on a well-run Flamingo. He showed Shoofey his numbers, scribbled on a paper napkin. First year projected profit: $1 million. Shoofey’s share: $100,000. And beyond the Flamingo was the promise to run the brand-new International, the biggest hotel in the world. Shoofey signed on.
But Kirk’s projections proved dramatically wrong. Under Shoofey’s management and with the elimination of skimmed casino revenues, Kirk’s reorganized Flamingo cleared nearly three million that first year. And it was still growing. It seemed too good to be true—at least to federal investigators who quietly added the name Kerkorian to their persons of interest list.
Meanwhile, Hughes remained the toast of Nevada’s political elite. When he needed special considerations from state gaming officials, he counted on Governor Paul Laxalt to declare the favors “good for Nevada.”12 When he needed gaming laws changed to allow corporations to be licensed, the state legislature made it a bipartisan priority.
It never seemed to bother Kirk that he was operating in the shadow of Howard Hughes. He still admired the man, still honored his genius and past contributions as an engineer and intrepid aviator. “He’s a mountain; I’m a molehill,” the soft-spoken Kirk said.13
But such respect was far from mutual. Among thousands of memos scribbled to Maheu, Hughes grumbled that Las Vegas “was fine until the place was invaded by Kerkorian . . . and a few others.” He compared the gambling haven to a jungle hill and Kirk to a rival tiger. “It just does not work out to have more than one tiger to each hill.”14
Hughes offered to buy Kirk’s land on Paradise Road just before construction began. Once major work was under way, the billionaire came up with a scheme to trade Kirk the Stardust Hotel (Hughes had an option to buy it at the time), reimburse Kirk for the unfinished hotel’s full midconstruction costs, buy the land at full market value, and then scrap the project.15
When all manner of financial incentives and bomb-test fearmongering failed, Hughes encouraged Maheu to dangle offers of personal friendship. He even scripted Maheu’s lines: “I think [Howard’s] friendship, and he has very few friends, is yours for the asking.”16 The script also offered future blockbuster partnerships, suggesting Hughes and Kerkorian might join forces to buy Western Air Lines (WAL) where Hughes was secretly engaged in talks. Kirk demurred again and again. He later professed to be completely unaware of any friction between them, or that they were proceeding on a course that a frustrated Hughes privately lamented “can only lead to a disastrous collision.”17
In October 1968, with steel girders of the future International Hotel already rearranging the Las Vegas skyline, Hughes invested $20 million in a bankrupt hotel with a seemingly cursed history. The Landmark Hotel had stood empty for eight years, never quite completed, collecting creditors, critics, and dust. What made this monument to financial calamity attractive to Hughes was its location. It was directly across the street from Kerkorian’s construction site.
Hughes was setting up to challenge Kirk head-to-head, hotel versus hotel, the Hughes Landmark pitted against the Kerkorian International—a demolition derby of casino owners. The collision on Paradise Road was set for July 1969.
15
A $73 Million Side Bet
Early December 1968
Los Angeles, California
Alden W. Clausen, vice chairman of Bank of America, had been a big fan of Kirk Kerkorian since those days shortly after the war when Walter Sharp, his Montebello branch manager, brought the young aviation entrepreneur to the bank’s attention. The bank’s relationship with Kirk had been mutually profitable for more than two decades—an uninterrupted series of successful loans and repayments that also resulted in friendships transcending business.
They hit a rough patch earlier in 1968 when the bank declined to make a construction loan on Kirk’s International Hotel and Casino. Kirk blamed an industry-wide bias against casino lending and harbored no hard feelings.
But on a Friday afternoon late in the year, Clausen was trying his best to be helpful to Kirk in other ways, interceding personally to introduce him to another of the bank’s major clients—Terrell C. Drinkwater, hard-charging president of the nation’s oldest commercial air carrier, Western Air Lines.
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