Trump's Reality Woes

By Dan Kadlec

In a recent episode of the hit TV show The Apprentice, Donald Trump challenged a gaggle of fawning dealmaker wannabes to boost revenue at his Taj Mahal casino in Atlantic City, N.J. Eager to impress, Trump's pupils got right to work. But they might have just as quickly asked, Who the heck is Trump to judge? After all, his casino empire has been losing money for years.

So much money, it was revealed last week, that auditing firm Ernst & Young warned of "substantial doubt" that the publicly traded gaming company run by Trump Hotels & Casino Resorts could continue as a viable enterprise. The prospect of a flashy failure could tousle the Donald's carefully coiffed image as a business guru. Fighting back, he declared last week that his casinos "have always been a good company" and that he will prove it by focusing on them until they are fixed.

Trump's forte is brand building, and he is the brand, the Martha of money. Trump does commercials for Verizon, was host of Saturday Night Live and last week unveiled Trump Visa, which rewards cardholders with casino discounts. There is now Trump Ice bottled water and a hot-selling book, How to Get Rich. Publicity, in other words, is his strength.

But can he run a business? Trump Hotels' shareholders have concerns. "I don't think he knows a thing about running the casinos," asserts Marvin Roffman, an analyst and longtime Trump critic at the investment firm Roffman Miller. The cash-starved casinos are run down and have been losing customers to newer outfits like the Borgata Hotel Casino & Spa, which opened last year. Since selling initial shares to the public in 1995, Trump Hotels has never recorded an annual profit and the stock has fallen 84%. If Trump gets the deal he wants to recapitalize the company, existing shareholders may get wiped out.

Trump is asking investors, who hold $1.8 billion in bonds, for a lower interest rate and what amounts to some debt forgiveness in return for stock and other considerations. He would not retain a controlling stake but would stick around in a high-profile role to promote the casinos. The key is a proposed $400 million investment by Credit Suisse First Boston, which would then own most of the company. Trump says he will use the infusion to pay off debt and reinvest in the properties. Some of Trump Hotels' bondholders are furious at the request to restructure the debt and may opt for bankruptcy if Trump pushes too hard. Just a year ago, they bailed him out of a cash crunch by buying a new round of bonds.

But Trump may get most of what he wants anyway--not because of his managerial acumen but because the brand he has promoted so tirelessly is a key asset. "His name has cachet," says Kim Noland, debt analyst at Gimme Credit newsletter. "That might actually help with customer count." Trump is a tough negotiator too. He knows from experience that when you owe billions, the creditors are in just as much trouble as you are. And he isn't all that desperate. His outsize ego could no doubt handle the potential Atlantic City bankruptcy, and his stake in the casino properties is, he says, only about 1% of his net worth.

Trump's patchy management record extends even to real estate, where he made his name. Insiders question how effective he is at the nuts and bolts of development--acquiring land, raising financing and dealing with architects and subcontractors. In the past decade, some assert, he has acted more as a front man who, for a cut of the action, lends his name to projects backed and managed by others. Trump says that characterization is "false." He says he owns at least 50% of the numerous buildings bearing his name in Manhattan. But even if the claims were true, he says, "that's hardly an insult. You build the brand so you can do that." Privately, even rivals concede that the Trump name adds up to $100 per sq. ft. to a building's value.

How rich is the Donald? To interviewers, he hints that his wealth is somewhere between $2 billion and $6 billion. Rival developers estimate it's nowhere near even the lower figure. But he has certainly brought home some lucrative deals. In the early 1990s, he bought the dilapidated 70-story office tower known as 40 Wall Street, designed in the 1920s to be the world's tallest building. He invested about $100 million, including renovations. Experts say the building is now worth more than twice that and generates $10 million a year in rental profit. You don't need many of those to get filthy rich. Then all you have to do is tend to your brand--and the deals will come to you. --With reporting by Daren Fonda/New York

With reporting by Daren Fonda/New York