The Real Trump Deal. Martin E. Latz
your leverage. Don’t assume it will stay the same. In fact, time alone often strengthens one of the parties’ leverage. Time may work for you or against you. When you have strong leverage, exercise it and get the deal done.186
When you sign the deal may determine if you even have one.187
Trump knew his strong leverage might not last.
So what negotiation strategy did he execute to seize this window of opportunity, described in Making Trump as “perhaps the most lucrative negotiation of Trump’s life”?188
Two things. One, he pushed hard to get a license in six months instead of the usual 18 months.
New Jersey required all license applicants to complete a highly detailed personal history under a system designed to fulfill the promise to New Jersey voters that Atlantic City would not become a mob-run Las Vegas East….The state was so diligent in vetting would-be casino owners that it sent detectives overseas to interview people and inspect documents.189
What was Trump’s hurry? His leverage could change. And Trump was “unwilling to endure such a lengthy inquiry, [so he] set about arranging special terms to prevent scrutiny of his past, a practice he has continued to this day,” according to Making Trump.190
In other words, an expedited process might not allow New Jersey to complete its due diligence. If New Jersey fully vetted Trump, noted Making Trump, it would have found several usually disqualifying elements he did not include in his application, including:
A 1979 federal grand jury inquiry into how he had acquired the Penn Central railroad yards on the West Side of Manhattan (federal agents had interviewed Trump twice on this);
The 1980 U.S. Attorney’s investigation into whether Trump and Berger had illegally cheated Penn Central in the bankruptcy case;
The FBI’s questioning of Trump relating to the Trump Tower apartment he allegedly arranged for Cody’s girlfriend;
Trump’s hiring a mob-connected construction firm in 1978 to work on Trump Tower; and
A 1973 U.S. Justice Department racial discrimination case against him. (Trump checked “no” on the application asking whether he had ever been accused of civil misconduct.)
Trump was never indicted nor convicted of anything. But the application required he list these investigations regardless of result. And the cover of the application, in capital letters, stated: FAILURE TO ANSWER ANY QUESTION COMPLETELY AND TRUTHFULLY WILL RESULT IN DENIAL OF YOUR LICENSE APPLICATION.191
New Jersey also meant this, as “this standard had been strictly enforced for other people.”192
Why did the Division of Gaming Enforcement report, which completed its investigation in five months, ignore Trump’s failure to list these items? And why give him a free pass on the two it found that Trump subsequently added to his application?
New Jersey desperately wanted Trump. In a word, leverage.
The second strategy Trump used to get an expedited review involved politics, also related to his leverage. “Instead of going to state government offices in Trenton, Trump asked John Degnan, the New Jersey attorney general, to come to him. [Degnan did and brought with him] G. Michael Brown, the head of the Division of Gaming Enforcement.”193
The first hint of Trump’s leverage? They came to him, not the other way around. What happened? According to Making Trump,
Trump assured Degnan there was no need for a long inquiry into his conduct and business dealings; he was “clean as a whistle”—too young at age thirty-five to have become enmeshed in any sort of trouble.
Trump then told him that unless the attorney general expedited approval, he would not build in Atlantic City, where he had already acquired a prime piece of land at the center of the Boardwalk. Finally, Trump hinted that his Grand Hyatt Hotel, next to Grand Central Terminal in midtown Manhattan, could accommodate its own casino.
…Degnan was about to make his own run for New Jersey governor. He knew that a Trump lawsuit, a Trump campaign for casinos in New York, or denunciations from Trump about excessive government regulation would not win him any votes. He agreed to Trump’s terms. He did not promise approval, but did promise that, if Trump cooperated, the investigation would be over within six months. [Emphasis added.]194
Trump had powerful leverage and exercised it. As noted in Trump Show, “Donald was the white knight from New York that New Jersey desperately needed to lend luster and credibility to its casino industry.” [Emphasis added.]195
Trump got his license.
Trump’s Harrah’s Partnership—The Illusion of Need
Trump now had the land and license. But he still needed financing and an operator. Leverage again proved crucial.
For the financing, Trump was “fishing for financing everywhere,” including holding detailed talks with Drexel Burnham Lambert’s junk bond king Michael Milken. Milken was pushing for a $30 million equity investment from Trump. Trump, typically aggressive, wanted 100 percent financing.196
Trump, at the same time, was negotiating with Harrah’s, the casino operator owned by Holiday Corp. (which also owned Holiday Inn). These negotiations were for a partnership to operate the casino. Later, after Harrah’s committed to a deal as the operator, it would also include financing when Trump’s promised financing failed to materialize.
Three elements of these negotiations reflect Trump’s actions to maximize his leverage. One, Trump simultaneously engaged in negotiations with multiple parties, his Plan A (Harrah’s) and B (Drexel).
Two, Trump created an illusion of great activity at his construction site when he showed it to potential partner Harrah’s board members. This suggested he was well into building the casino when he had yet to get financing or do much work there.
Here is how Trump Revealed described his illusion. If Harrah’s believed it, this would suggest Trump was interested, but not desperate.
In June 1982, Trump hosted board members from Harrah’s… at the site of his proposed casino. The Trump Organization had done little work at the construction site. To impress the Harrah’s officials, Trump told a crew to dig up dirt and push the piles around the two-acre lot. Trump instructed the workers to make it look like “the most active construction site in the history of the world.”
On the tour, a Harrah’s official asked why one of the workers was quickly filling a hole he had just dug. Trump was relieved when the questioner was not more skeptical. Trump would recall with glee his little deception: “The [Harrah’s] board walked away from the site absolutely convinced that it was the perfect choice.”197
In fact, Trump was desperate. But Harrah’s had no idea. Had he not inked the deal with Harrah’s three weeks later, “he would have literally been out of money” and would have been forced to “halt the limited construction activity then going on at the site.”198
Trump, though, created the perception of not being desperate. This strengthened his leverage. Trump also understood how timing relates to leverage: he struck while the iron was hot.
Finally, Trump exercised the leverage he created to achieve what Trump Show noted “might be the single best deal of [Trump’s] life.”199 What did he negotiate?
– Harrah’s would pay Trump $22 million initially to cover his alleged project expenses;
– Harrah’s would invest an additional $28 million in the project;
– Trump would build the casino and collect a construction fee; and
– Harrah’s would operate the casino, share half the profits with Trump,