“I asked them, but they looked at me like . . . ‘where do you want your bullet?’” Kerkorian confided to close associates.
Of course, Kirk didn’t really care personally about obtaining those numbers. He wanted their assets, not their spreadsheets. So when the IRS asked Kirk for the business records of prior owners, all he could offer were a few notes he’d jotted on a paper napkin.
Suspicious federal investigators weren’t satisfied. They served a search warrant on the Flamingo’s New York offices looking for records of gambling payouts under the previous owners. At that point, the Lansky tax investigation started becoming a nuisance to Team Kerkorian. But Kirk wasn’t going to be distracted. He was on a roll.
He not only controlled Western Air Lines but he had also just sold his Transamerica stock and paid off the big Bank of America loan that financed his airline takeover. Control of MGM was also in sight. And in Las Vegas the International Hotel had opened to stunning numbers and great reviews. Even a looming national recession and tight credit didn’t seem to discourage Kirk.
The first inkling that federal pursuit of Lansky might ultimately inflict serious collateral damage on Kerkorian came shortly after his International Leisure Corp. filed for SEC approval to sell stock—its second public offering. Responding to pressure from the IRS and the U.S. Department of Justice (DOJ), the SEC demanded additional financial reports predating Kirk’s 1967 purchase of the Flamingo—records that Kerkorian again explained he never received and never reviewed.
The SEC was skeptical that Kirk had accepted such limited information. What kind of due diligence was gut instinct? How could Kirk agree to spend $12.5 million without more detailed financials? The agency suggested that Kirk’s people renew their request for more pre-1967 Flamingo data. Cohen and Lansburgh, now facing the same skimming and tax evasion suspicions as Lansky, stonewalled Kirk again, just as they were also stonewalling the IRS and DOJ.
The law of unintended consequences delivered a punishing blow to Kirk shortly before Christmas 1969. A second public offering of stock in International Leisure was blocked indefinitely. The SEC wouldn’t budge from its insistence that the current Flamingo management was responsible for providing financial documents its predecessors had lost, destroyed, or failed to maintain.
Those federal bloodhounds on the scent of Meyer Lansky had successfully rousted the old mobster from his steam room. But now they were forcing Kirk Kerkorian into financial hot water when it appeared that the only thing he did was take a former Lansky property legit.
The stock sale had been Kirk’s ace in the hole for retiring much of the high-interest European debt accumulated in his pursuit of MGM. Kirk couldn’t help feeling victimized by the SEC’s intransigence. He was being held responsible for past cover-ups of Meyer Lansky’s secret interest in the Flamingo—secret interest that Kirk ended and replaced with straightforward recordkeeping. He was frustrated. Friends noticed a darker, angrier Kirk. His treatment by the SEC wasn’t fair. It wasn’t right. It shouldn’t have happened.
And then, things got worse.
Kirk was staying at the Regency in New York on January 15, 1970, when he got a call from MGM president Jim Aubrey asking, “Have you seen the papers?” He immediately rode an elevator down to the lobby to find his own copy of the tabloid New York Post and its front-page headline: “MGM Head Talks to Mafia.”1 It was based on a wiretap recording of that long-forgotten telephone call between Kirk and his bookie, the man he knew in 1961 as “Charlie White.”
As Kirk read the Post account, it all came flooding back—his betting on football and boxing . . . the check for $21,300 that he endorsed to actor George Raft, a friend of Charlie’s . . . that he sent to Raft, care of the Warwick Hotel . . . because the heat was on.
The sensational press accounts came out of evidence submitted to a New York legislative committee hearing testimony about organized crime in the state. Featured that day were various intercepted phone calls involving Charles “Charlie the Blade” Tourine (a.k.a. Charles White), an enforcer for New York mob boss Vito Genovese.
“It was strictly a gambling debt,” Kirk insisted. “Is that a big deal, you know, betting on a sporting event?”2
Kirk’s choice of bookies looked especially questionable in retrospect. By 1970 Tourine had a rap sheet with arrests ranging from illegal gambling, bribery, and tax evasion to murder, robbery, and kidnapping. Kirk was embarrassed by the disclosures, deeply and awkwardly embarrassed.
“I knew a guy named Charlie White but suppose it was Charlie Tourine?” Kirk tried to explain to a friend. “Who knew who these people were . . . then? Like Meyer Lansky? I’d never heard of Meyer Lansky.”3
His Las Vegas attorney, William Singleton, finally issued a media statement “flatly denying” that Kerkorian “has ever knowingly been associated with any member of a criminal organization.” But that did little to quell the controversy. There was new speculation that Kirk may have borrowed money from the mob. “Mafia Tie Again Denied” said the Wall Street Journal, keeping the unsupported allegation alive.4
Tourine appeared before the committee and refused to testify, invoking the Fifth Amendment again and again. That didn’t end it, either. Worse, Tourine’s voice was heard repeatedly on the wiretap recordings.
On one tape, “Charlie the Blade” can be heard touting Kerkorian as “a real nice guy. I like him a lot.” Kirk could only cringe. For a financier controlling three publicly traded companies and hoping for the SEC to ease its ban on the second offering of International Leisure stock, such glowing words from a mobster were no more welcome than that attack of appendicitis he had years ago riding horseback with Sheriff Lamb.
Part of the problem facing Kirk as the story spread in those first weeks of 1970 was his sudden appearance on the big stage of American high finance. Little was known about his background, and Kirk’s reluctance to seek publicity only added to the public curiosity. He was what’s called a media virgin. Unfamiliar with public controversy and with no public relations people to guide him, he was suddenly caught up in a press feeding frenzy.
“To some, Mr. Kerkorian is a mystery man,” said the Wall Street Journal in a story about Kirk’s links to the mob wiretaps. “Most of his fortune has been accumulated since 1965, and there are people who ask how a man could get so rich so fast.” But the paper also reported that federal investigators across the country with “a direct knowledge of the Mafia” said they found no evidence of business ties between Kerkorian and the underworld. And Frank Johnson, chairman of the Nevada Gaming Commission, which investigated Kerkorian before granting him his gambling license, called any suggestion that Kirk had mob ties “nonsense.”5
But as the negative news coverage continued, there was no question that any publicity that put Kirk in the same headline with the mob was very bad publicity. By spring, International Leisure was forced to withdraw its application for the second public offering. And Kirk had to hang for sale signs . . . on everything.
Talks began with a very aggressive Barron Hilton of the Hilton hotels chain. He was a big fan of Kirk’s investment strategies and still kicking himself for being too slow to buy into Trans International Airlines. This time, Barron was eager for a partnership with Kirk as joint owners of the International Hotel. He had to be aggressive. The Hyatt’s Pritzker family was also interested in breaking into Las Vegas.
Team Kerkorian was disappointed that Kirk was selling any portion of the hotel business they had helped launch. They had brought up the International from a hole in the sand. It was their baby. Benninger favored selling off the movie company. Unfortunately, both MGM and Western stock prices were badly depressed. Besides, Kirk wanted more time to mine the hidden value lurking in both the airline and the film studio. And he had special plans for MGM that he wasn’t sharing yet—not even with Fred Benninger.
It appeared that a fifty-fifty split of International Leisure with the Hilton chain was likely to satisfy Kirk’s immediate cash needs, paying off the most pressing of those
high-interest European loans. But Alex Shoofey didn’t like the deal and said so in his own typically unvarnished way: “That’s a stupid agreement!”6
Clearly, Kirk didn’t hire Shoofey to be a “yes man.” Kirk hired experts to tell him things he didn’t know, to be straightforward and honest with him, and to do what was best for the company. Shoofey put that priority to the test more than once.
“With a fifty-fifty deal, you have no say. You’ll be arguing constantly,” insisted the disdainful hotel president. He pressed Kirk to sell only 49 percent.
“They’ll never go for it,” Kirk said.
The sale ended up coming together in stages, which had the effect of delaying an actual fifty-fifty outcome for months. One reason for the protracted transaction was the dreadful condition of the stock market. It was heading to record lows and taking with it the paper savings of millions of Americans—and a big chunk of Kerkorian’s net worth. In just a few months, International Leisure stock had fallen from about $65 a share to less than $6.50. Kirk had no choice but to sell at the worst possible time.
Hilton paid only $19.4 million for roughly half of Kerkorian’s holdings—nearly three million shares that a few months before would have brought $180 million. “I got a good kick in the ass,”7 Kirk conceded to a close friend. But his share of a stockholders’ dividend put another $5 million in his pocket, allowing Kirk to pay down half of his largest European bank loan.
And Kirk kept on selling things. His million-dollar yacht, the 145-foot Tracinda Jean, was sold suddenly after an unexpected offer from a Saudi Arabian businessman. A Chicago Tribune columnist reported that Kirk sold the boat out from under his last charter customer, Playboy publisher Hugh Hefner, who had leased it for a week off St. Tropez in the French Riviera.8
A year later, after a chance encounter at the Madrid airport with Saudi playboy and businessman Adnan Khashoggi, an impromptu negotiating session on the tarmac led to the $4 million sale of Kirk’s DC-9.
One outgrowth of Kirk’s unpredictable childhood—of constantly being on the move, dodging landlords and creditors, in and out of money—was his personal detachment from material things. “Things” didn’t matter in the Kerkorian home—loyalty and family were the only “possessions” that came along on every move.
“I’m not married to any ‘thing,’” Kirk would say. And whether in times of crisis or just to make a good deal, almost every “thing” in Kirk’s possession throughout his life was for sale; some of those things ended up bought and sold over and over again.
Kirk’s deal with the Hilton chain faced modification in the weeks after he sold off half of his personal share in the International. The Hilton company required an eventual 50 percent plus one share of stock to satisfy its own corporate rules. The problem was that not enough other International Leisure stockholders were willing to sell to Hilton at the $6.48 per share price that existed when Kirk sold.
The mostly amicable transaction could not be closed without Kirk finally agreeing to dip into his personal holdings again, this time for nearly 400,000 shares that he again sold at the $6.48 per share price, although the market price had more than doubled by then. The Hilton chain’s full 50 percent threshold was reached at a cost of $21.4 million—a bargain in any market—but worth nearly $50 million even in the bear market of 1969–70.
Kirk remained the largest single stockholder of International Leisure, personally controlling 38 percent compared to Barron’s individual holding of 3 percent. Kerkorian and Fred Benninger represented half of the four-member board of directors. Barron and Hilton executive Stanley Zax were the other two. Both sides agreed not to fill a jointly appointed fifth director. It was a concession to Kirk, who was smoldering over his lost autonomy. At least with two slots on a four-member board, Kirk did not fear being outvoted.
He didn’t care, he said, if they changed the name of the International to the Hilton. And he shrugged off questions about his staggering paper loss on the deal. But in a rare public display of temper, Kirk let his feelings show when asked about sharing management control with his friend Barron Hilton and his team:
“They can talk all they want. They can call it Hilton Hotels. I have no ego problems. But we own equal voting control. . . . We have two directors. They have two. I hate even that. I like to call my own shots. It’s my place more than Barron’s and Conrad Hilton’s. So, I’m not going to dance to their tune . . . and they can go whistle.”9
Like any sane gambler, Kirk never looked back. He wanted no part of what-if speculations, no second-guessing about past decisions. Learn a lesson from mistakes and move on, that was Kirk’s way. But Kirk’s legal and financial advisers wanted to blame the SEC. They estimated that Kirk lost $100 million as a direct result of the stock offering denial.
Kirk blamed Kirk. He had let himself become vulnerable. He hated that. He hated feeling helpless and at the mercy of forces beyond his control. It took much of the fun out of his life and out of his business in 1970. He vowed never to let anything like that happen again.
20
Making Debbie Reynolds Cry
May 1970
MGM Back Lot
MGM was in the second week of a massive auction of props, costumes, and equipment when Item W-1048 was called. It was the moment a crowd jammed into soundstage 27 had been waiting for, the moment that defined all that was magical—and miserable—about Kirk Kerkorian’s financially ailing film studio. More than half a century and two thousand movies after inventing Hollywood, the Metro-Goldwyn-Mayer dream factory was more closely imitating a C-47 falling out of the sky as the company plunged toward bankruptcy. Whatever wasn’t bolted down was being tossed overboard, and that included Item W-1048: the ruby slippers Dorothy wore in The Wizard of Oz.
“What do I hear for the shoes?” called out David Weisz, the auctioneer. “Somebody start it out.”1
“One thousand dollars,” said a loud voice, and the bidding erupted.
In a few seconds the high bid reached ten thousand dollars. By that point a group of Culver City schoolkids had to withdraw. They were the “Committee to Save the Ruby Red Slippers.” They had raised a few thousand dollars in nickel and dime contributions, parent donations, and even a city council pledge of $2,500 more in taxpayer support. It wasn’t enough.
“Eleven thousand!” The bids resumed. Twelve thousand . . . and then, a jump to fifteen. The crowd went silent.
“Fifteen thousand, I’m bid—once,” said the auctioneer. “Twice . . . Are you all through?”
And thirty-six seconds after asking somebody to start the bidding, Weisz declared the ruby slippers “sold for fifteen thousand dollars” to the lawyer for an unidentified millionaire. Thirty-six seconds to dispose of the holy grail of movie memorabilia. Thirty-six seconds to move on to the next item in what many called the biggest and saddest yard sale in Hollywood history.
The studio that Kirk took over had been in far worse shape than anyone dared admit when he was pouring tens of millions of borrowed dollars into buying its stock. A few months earlier, at the first stockholders’ meeting under the Kerkorian administration, newly installed president Jim Aubrey announced a previous year loss of $35 million. More box office duds were in the pipeline. Drastic cutbacks, layoffs, and the sale of real estate and corporate body parts seemed the only option. Those concerned about preserving film history were trying to hold back a mob of desperate bean counters.
Fred Benninger was one of those who knew just how bad MGM’s numbers were—and how much worse they could get. On a tour of the studio’s Culver City back lot, he was impressed with how much “stuff” was lying around unused. Instead of historic props and sets, he saw an enormous and continuing storage expense. “How often is this stuff used?” he asked. For the Prussian, it was a polite way of broaching the question: What to do with all this junk?
The new owners saw little intrinsic value in back-lot stuff. After all, even the famous ruby slippers were just used shoes with red sequins. They cost the costume department no mo
re than fourteen dollars back in 1938. The studio agreed to pay auctioneer Weisz a flat fee of $1.5 million for everything—from an Esther Williams swimsuit and Clark Gable’s trench coat to a working steam locomotive that once hauled President U.S. Grant and last appeared on-screen in How the West Was Won.
Under the Kerkorian-Benninger-Aubrey scheme to save MGM, much of the back lot located on the pricey West Side of metropolitan Los Angeles was going on the block. The land itself was worth tens of millions to developers. To use it for costly warehousing to preserve the old stern-wheeler from Showboat or the racing chariots from Ben-Hur or The Unsinkable Molly Brown’s brass bed or Civil War cannons from Gone With the Wind . . . or Greta Garbo’s hats . . . or Dorothy’s old ruby slippers—well, that penciled out very badly in a cost-benefit analysis. The stuff had to go. Soundstages had to go. Andy Hardy’s hometown, Scarlett O’Hara’s Tara plantation, the streets of Old New York, and Tarzan’s jungle all had to go.
It would take twenty days to complete the auction. Actress Debbie Reynolds was there most days. She spent a reported $600,000 buying up costumes, pieces of sets from award-winning movies, and various props hoping to preserve them for a future Hollywood museum. She considered the massive auction a “sad and stupid” waste of Hollywood’s priceless past. “I sobbed every day,” she said.
The MGM liquidation campaign started months before any opening bids in the auction that would make Debbie Reynolds cry. The studio’s entire camera department was shut down and its equipment sold to Panavision. It was cheaper to rent cameras as needed than to store idle equipment and pay camera operators whether they were shooting or waiting for their next project. The New York executive offices on Avenue of the Americas were shut down and returned to Culver City. Aubrey had a sign marking his parking spot. Kirk requested that his be marked simply with his lucky number “21.”
The Gambler Page 16