The Washington PostDemocracy Dies in Darkness

Trump’s bad bet: How too much debt drove his biggest casino aground

In 1990, Donald Trump opened the largest and most lavish casino-hotel complex in Atlantic City. But just several months later, it all fell apart. (Video: Alice Li/The Washington Post, Photo: MIKE DERER/The Washington Post)

For months in 1987, Donald Trump maneuvered to take control of the hulking, unfinished Taj Mahal casino in Atlantic City. He snapped up stock in the parent company after its owner died and then made a surprise bid to take the company private.

With the Taj, along with two casinos he already owned in the city, Trump could dominate gambling on the East Coast. But first he needed to convince state gambling regulators that he was financially stable and could raise enough cash to complete the $1 billion project.

On Feb. 8, 1988, at a licensing hearing in front of the state Casino Control Commission, Trump said he could pull it off for one main reason: He was Donald Trump. Because of his reputation as a dealmaker, he said, bankers were lining up to lend him money at prime rates. That meant he could avoid the risky, high-interest loans known as junk bonds.

“I’m talking about banking institutions, not these junk bonds, which are ridiculous,” Trump testified, according to transcripts of the hearing. “The funny thing with junk bonds is that junk bonds [are] what really made the companies junk.”

Trump received the approvals he needed for the Taj, but the prime-rate loans never materialized. Determined to move forward, he turned to the very junk bonds he had derided in the hearing. He agreed to pay the bond lenders 14 percent interest, roughly 50 percent more than he had projected, to raise $675 million. It was the biggest gamble of his career.

In April 1990, the Taj opened as the world’s largest casino-hotel complex, joining Trump’s other holdings already operating in Atlantic City, the Trump Plaza and Trump’s Castle. But Trump could not keep pace with his debts on the three casinos. Six months later, the Taj defaulted on interest payments to bondholders as his finances went into a tailspin. In July 1991, Trump’s Taj Mahal filed for bankruptcy, the first and most significant of the four that his companies have experienced.

The bad bet on the Taj Mahal continues to haunt Trump, the leader in the race to become the Republican nominee for president. During recent GOP debates, opponents and journalists have repeatedly asked why he should be trusted to manage the country after losing lenders hundreds of millions of dollars. Trump responded that he was shrewd for using “the laws of the country to my benefit” and has distanced himself from the Taj’s troubles, saying he never personally declared bankruptcy.

Much has been written about this period of Trump's career. But much has been forgotten over the past quarter-
century — or overlooked in this lightning-fast election cycle. The Washington Post reviewed hundreds of pages of legal, regulatory and financial records relating to the Taj Mahal. The Post found that Trump's statements during the campaign about his companies' bankruptcies play down his personal role in the downfall of the Taj. Trump took extreme risks in a shaky economy, leveraged the Taj deal with high-cost debt, and ignored warnings that Atlantic City would not be able to attract enough gamblers to pay the bills, documents and interviews show.

In an interview with The Post, Trump said his work on the Taj Mahal was ultimately successful and earned him a lot of money. He said the bankruptcy was the result of external forces beyond his control, specifically an extremely bad economy in 1990. He said he had “the prerogative” to change his mind about using junk bonds in the financing.

“I didn’t want to have any personal liability, so I used junk bonds. I accept the blame for that, but I would do it again,” he said. But Trump vehemently denied that the deal represented a personal failing or affected his personal wealth.

“This was not personal. This was a corporate deal,” he said. “If you write this one, I’m suing you.”

Documents and interviews show he left a legacy of bitterness among onetime proponents, including city officials, casino regulators and citizens. Some came to see that the giant Taj, while outwardly impressive, had little financial substance behind it. Steven P. Perskie, former chairman of the Casino Control Commission and a former state Democratic lawmaker, called it a "Potemkin village."

Trump made promises to Atlantic City that he did not keep, Perskie said. “When I read and hear him say he was beloved in Atlantic City, that was before [the bankruptcy]. He remembers to perceive how he started, not how he was perceived when he left.”

The Taj bankruptcy was a corporate filing, as Trump has noted. But there was much overlap between Trump the corporation and Trump the man. He owned 100 percent of the casino, documents indicate. As the Taj tumbled, so did Donald Trump, documents show. He eventually gave up half of his stake in three casinos and sold off other holdings, including the 282-foot Trump Princess yacht.

Roger Gros, publisher of Global Gaming Business magazine in Las Vegas, witnessed Trump's rise and fall in the casino business. He has tracked Trump's presidential campaign. Gros said the version of events Trump shares on the campaign trail does not square with the events that unfolded a quarter-century ago in Atlantic City.

“His claims now just are not credible,” Gros said.

The story of the Taj offers insight into the man who wants to succeed Barack Obama as president of the United States. Then, as now, Trump sold himself aggressively as a consummate entrepreneur and manager. He positioned himself as an outsider with unique talents and said he could achieve things far beyond the grasp of competitors.

In the Republican presidential debate in October, he said that his experience with companies that went through bankruptcy would help him manage the nation's debts.

“That is what I could do for the country,” he said. “We owe $19 trillion. Boy, am I good at solving debt problems. Nobody can solve it like me.”

By the time he became interested in Atlantic City, as early as 1976, Trump was gaining a reputation as a highflying developer in Manhattan. He had taken over his father’s sprawling real estate empire and was looking to expand.

He kept watch as support for a referendum permitting casinos gathered steam in New Jersey's statehouse. The city then was a struggling resort town, "barren and hostile, with its boarded-up shells and vacant lots," investigative reporter Wayne Barrett wrote in "Trump: The Deals and the Downfall," published in December 1992. Gambling promoters promised that casinos would change everything.

After the first casino opened in Atlantic City in May 1978, Trump traveled from his offices in Manhattan to scout out the Boardwalk for possible sites to build his own hotel. Paul Rubeli, then chief of gaming operations for the new Tropicana hotel and casino, recalled hearing that Trump wanted to tour the property. Rubeli said Trump was very thorough and insisted on seeing everything from “the bottom of the building to the top of the building.”

“He was an up-and-coming guy,” Rubeli told The Post.

Trump began buying land along the Boardwalk and successfully sought to be qualified for a gaming license. In 1982, he teamed up with Holiday Inn to build the casino that came to be known as the Trump Plaza. When it opened in 1984, the Plaza was the city’s tallest building and its largest casino.

The next year, Trump bought the Hilton Hotel, secured approval to operate it as a casino and renamed it Trump’s Castle. Both did well, but his ambition remained unsated.

From the beginning, Trump kept an eye on the Resorts International Hotel and Casino, which opened in May 1978 as the city's first gambling hall. It raked in cash for the company owned by its legendary founder, James Crosby.

In 1986, Crosby died unexpectedly during surgery. His company was suddenly rudderless at a time when profits had begun to wane. Resorts was also overwhelmed by what had been Crosby’s grand vision for a new casino: the Taj Mahal. Over the previous three years, Resorts had poured as much as $500 million into the massive structure, which promised more than 1,000 rooms. But it was only half done, and construction funding was running low.

Some people considered the Taj to be a money pit. Trump, then 40, saw it as a potential money machine. In March 1987, he made a move on Resorts, agreeing to buy a controlling chunk of the company’s voting stock from Crosby’s heirs — giving him control of assets potentially worth $1 billion. Market watchers applauded Trump’s verve. But some industry insiders wondered about his timing.

Resorts was deeply in debt. The projected completion costs of the Taj had quadrupled to more than $800 million and were rising. To cash in on his investment, Trump would have to finish the Taj, and do it at a time when financing was becoming difficult to arrange.

At the same time, the gambling market was becoming more complex. Revenue in Atlantic City had risen to record levels. But casino profits had dropped in recent years because of mismanagement and fierce competition. In 1986, the city’s casinos recorded $2.5 billion in gambling revenue but only $74 million in profit, according to one report.

Some gambling analysts were becoming bearish about the prospects for future growth. In June 1987, Marvin Roffman, a prominent analyst at Janney Montgomery Scott, said the opening of the Taj Mahal would only intensify the pressure on profits. He wrote that “we are projecting that 1990 may be a very tough year for the Atlantic City casino operators.”

Trump appeared to be undaunted. In July 1987, he became the chairman of Resorts’ board of directors and finalized the stock deal, spending $79 million and receiving 72 percent of the voting shares in the corporation. Trump installed his brother Robert and another associate on the board. Trump wasn’t acting merely as an investor or manager. He began to press for a lucrative “comprehensive services agreement” that would require Resorts to pay him to arrange for financing and manage the Taj’s construction. It was estimated to be worth $108 million over five years.

Lending became exceedingly tight after Oct. 19, 1987, known as Black Monday, when the Dow Jones industrial average plunged by almost 23 percent. In the aftermath, Resorts stocks continued a long slide down.

On Dec. 16, despite the downturn in the market and qualms about Trump’s management fees, the commission approved his services agreement.

Five days later, Trump delivered a surprise. He offered to buy the remaining Resorts stock at the depressed prices and take the company private.

In a news release, Trump offered gambling regulators a tough choice: They could support his new direction, or he would walk away and the Taj project would languish. The release warned that “only with the financial backing of the Trump Organization will it be possible to build the Taj Mahal.’’

It was a striking display of self-confidence. “Instead of drawing the millions in fees due under his carefully arranged management contract, without any down­side risk, Donald was repositioning himself to rise or fall with the Taj,” Barrett wrote.

While his offer to buy the Taj was pending, Trump went before the commission to win approval for a casino license in his name for the complex. At the hearing on the morning of Feb. 8, 1988, the commission, unsettled by Trump’s recent maneuvers, asked him to provide more details about his plans.

Trump, testifying under oath, said his attempts to raise financing had faltered because bankers did not have enough faith in Resorts and were uneasy about his lavish services agreement. He said it was not until he moved to take total control of the company that bankers responded well to his request for a big loan.

With him in charge, Trump said banks were willing to give him loans at 9 percent interest or less, “prime rates” far below what other developers could hope for. “I also, as I said before, don’t have to use junk bonds. I can use my own funds or I can use regular bank borrowings, so I can build at the prime rate,” he told the commission. “I mean, the banks call me all the time. ‘Can we loan you money? Can we do this? Can we do that?’ ”

Trump took time to elaborate on the importance of avoiding junk bonds.

“I’m telling you that whether it’s General Motors or Procter & Gamble, or any other company, if they have to go out and get junk bonds to do their borrowings, they are not a strong company,” he said. “They make them junk. So it’s like a self-fulfilling prophecy almost.”

The commission and its lawyers expressed skepticism. How could Trump get such a good deal when others had to pay so much more to borrow?

“It’s easier to finance if Donald Trump owns it,” he said. “With me, they know there’s a certainty they would get their interest.”

Trump said he held another appeal for bankers: “I get it done, and everybody is happy and it turns out successfully,” he said.

He was asked, in general terms: “Is there anything that can go wrong, that you’re aware of?”

“We can have a depression,” Trump responded. “The world could collapse. We could have World War III. I mean, a lot of things can go wrong. I don’t think they will.”

The commission pressed Trump about his projected costs. His plans would bring spending on the Taj to $1 billion, with added luxury suites, gourmet restaurants and opulent fixtures, something the commission referred to as “extras.”

“Don’t people have to live within their means?” one commissioner asked.

Trump said the added costs were insignificant and were necessary to help impress customers. “We are probably talking about a difference of $50 million or so,” he said.

“I mean, the worst thing to happen with the Taj Mahal is for the building to open and for people to have been disappointed with it,” he said. “Because word of mouth on something like this, it’s like a Broadway show.”

“My basic attitude has always been that I want to do what is good for Atlantic City,” Trump said.

Ten days later, commissioner Valerie Armstrong said Trump’s testimony was “laced with hyperbole, contradictions and generalities which make it difficult to evaluate” his fitness for licensing, according to a transcript of a subsequent commission hearing on Feb. 18, 1988.

“While it might be possible to conclude that the events of the past eight months resulted from happenstance, impulse, fate and/or events beyond Trump’s or Resorts’ control, it is also just as easy, perhaps easier, to conclude that many of the events leading to Mr. Trump’s current [takeover] proposal have been carefully staged, manipulated and orchestrated,” Armstrong said.

A month later, a day before Trump’s deal for Resorts was set to go through, his plan hit a snag. Merv Griffin, the television host and producer, made a competing high-priced offer.

Griffin said he would pay $245 million for Resorts if Trump agreed to vote in favor of the takeover and canceled his services agreement. Trump declined. For weeks, the two fought a highly publicized battle.

On May 27, they agreed to a complicated settlement that split the company and its assets. Griffin got the existing Resorts casinos in Atlantic City and Bahamas. Trump received a substantial payment to release Resorts from his services agreement. More important, he got the Taj.

Trump later wrote that acquiring “the Taj wasn’t something I had planned.”

"Our compromise, which gave me $12 million and the unfinished Taj Mahal, turned out to be one of the best deals I ever made," Trump wrote in "Trump: The Art of the Comeback." "At the time, I thought his chances of making Resorts successful were about as good as his chances of getting Sharon Stone pregnant."

Within days, Trump formed a company called Trump Taj Mahal Funding to seek a loan for the construction. Despite his claims to the commission, Trump could not line up the prime loans. He had to make do with the junk bonds he had so forcefully derided.

In November 1988, a financial firm working with Trump issued junk bonds that paid 14 percent. He would have to pay about $95 million a year in interest payments, not counting the debt from his other casinos and holdings, according to one analyst’s report.

“The Taj was going to be the biggest and the best and greatest,” Rubeli, the former Tropicana executive, told The Post. “As Donald would say, ‘It was going to be huge.’ ”

Trump’s Taj Mahal kept expanding. It was now going to be bigger and costlier than anything Crosby envisioned — the largest, most expensive casino ever constructed. The complex would include 1,250 hotel rooms, a 120,000-square-foot casino and about 6,500 employees.

Trump paid little heed to a growing drumbeat of concerns about Atlantic City. In July 1989, Roffman, the market analyst, issued another gloomy report for investors. Its headline: “Atlantic City, New Jersey — Top Heavy in Debt — Houses of Cards.”

Roffman’s message was stark. Five years earlier, the city’s nine casinos recorded almost $169 million in profit on winnings of almost $1.8 billion. In 1988, profit dwindled to under $15 million, even though winnings had soared to $2.7 billion.

The problem was debt. “The Taj itself looks like a big gamble,” Roffman wrote of Trump’s heavily leveraged operation.

Trump and his executives knew of Roffman. “After he did his deal with Merv Griffin, he called me on the telephone and said, ‘Marvin, didn’t I do a fantastic deal?’ ” Roffman recently told The Post. “I said, ‘I think you made a mistake, Donald.’ I said, ‘Why own three casinos?’ ”

Trump brushed it off. “This is going to be a monster property,” Trump said, according to Roffman.

On March 20, two weeks before the Taj opening, the Wall Street Journal published remarks Roffman made about the casino, in a story that said the Taj would need to gross up to $1.3 million or more every day to pay the bills and the loans, more than any casino had ever taken in.

“When this property opens, he will have had so much free publicity he will break every record in the books in April, June, and July,” Roffman told the Journal. “But once the cold winds blow from October to February, it won’t make it. The market just isn’t there.”

Trump was furious. He faxed a threatening letter to Roffman’s boss. “You will be hearing shortly from my lawyers unless Mr. Roffman is immediately dismissed or apologizes.”

Trump also called Roffman directly, according to an account in Roffman's book "Take Charge of Your Financial Future: Straight Talk on Managing Your Money From the Financial Analyst Who Defied Donald Trump." Roffman said Trump urged him to "write me a letter stating that the Taj is going to be one of the greatest successes ever, and I'm going to have it published."

Under pressure, Roffman signed a letter of apology drafted by his firm. But when Trump asked for changes, Roffman retracted it in a follow-up note to Trump. A day later, he was fired.

Roffman pursued arbitration, saying his dismissal was unjustified. He won a $750,000 settlement from his firm.

“Understand that I was with the firm for 17 years, and I was a vice president of research. I loved my job,” Roffman told The Post. “I didn’t want to lose it. And I had never lost a job.”

He also sued Trump, settling for an undisclosed amount. Roffman declined to discuss the settlement.

The Post examined documents from Roffman’s lawsuit, including a deposition of Trump.

In his deposition, Trump said he could not recall reading any of Roffman’s reports. He described Roffman’s remarks in the Journal as a “vicious attack” and “not a nice thing on a human basis.”

Trump testified it was not his intention to get Roffman fired, despite what his demand letter said. Trump said he only wanted Roffman to withdraw remarks that “were totally inappropriate.”

“I didn’t have the right to fire Mr. Roffman by any stretch,” Trump said in his deposition.

The Taj Mahal opened on April 2, 1990. Over the next several days, gamblers lined up around the block. Michael Jackson appeared as the star guest. Publicists called it the "Eighth Wonder of the World."

Behind the glitter loomed extraordinary financial problems. The Taj and Trump’s two other casinos labored under a total of $1.3 billion in mortgage bonds. Trump’s empire owed an additional $2.1 billion to institutional lenders, of which Trump had personally guaranteed $833 million, according to the Casino Control Commission.

Trump's net worth became a subject of intense interest. Trump said it was about $1.4 billion. Forbes pegged it at $500 million. The commission later reported he was actually worth just $206 million.

In August, as Trump scrambled to remain solvent, accountants hired by him to assess his financial condition said in a report that his debts could exceed by $295 million the value of all his casinos, hotels, office buildings, his airline and other properties, according to a Philadelphia Inquirer article. In response to “severe cash flow difficulties,” he got a $65 million line of credit to keep Trump’s Castle, Plaza, Taj and other Trump enterprises afloat, commission documents show.

Another crisis came to a head in November when Trump was unable to pay interest on the Taj’s massive debt and defaulted. In December 1990, when Trump did not have enough money to pay the interest on the Castle’s debt, he turned to his father, a successful development tycoon.

On Dec. 17, a lawyer representing Fred Trump went to the Castle’s casino cage, handed over a check for $3.35 million as “front money,” filled out several forms and walked out with an equivalent amount of $5,000 chips in a briefcase, commission documents show. The lawyer repeated the procedure the next day, this time the exchange was worth $150,000.

Trump used the money to pay the interest, and the casino recorded the exchange as an outstanding gaming liability, documents show. But state officials later ruled it was a surreptitious loan and said it violated casino regulations. The state Division of Gaming Enforcement fined the Castle $65,000.

By March 1991, Trump was in “noncompliance” on $1.1 billion in loans across his empire, including the Taj, Trump Shuttle airline, the Castle, Trump Palm Beach Corp. and Mar-a-Lago, the spectacular estate in Florida.

Nearly all of his real estate holdings were “funded by external financing,” such as mortgages and construction loans, an internal commission report stated on April 15, 1991. His lifestyle, meanwhile, was also sapping his wealth, the report said.

“Mr. Trump expects to exhaust his financial resources in July 1991,” the commission’s report said. “Furthermore, as a result of his severely limited financial resources, Mr. Trump cannot be relied upon as a financial resource for Taj Mahal, Castle, or Plaza.”

On July 16, 1991, Trump Taj Mahal filed a petition in the U.S. Bankruptcy Court in New Jersey for protection under Chapter 11 of the U.S. bankruptcy code. Trump described himself in documents as the “sole Shareholder of Trump Taj Mahal, Inc.”

The consequences of the Taj bankruptcy rippled through Atlantic City and Donald Trump’s empire.

On Aug. 28, 1991, a federal judge approved the bankruptcy petition after a bondholders’ representative said “it would be a disaster” if the Taj were simply liquidated, according to a New York Times account.

Under the agreement, Trump gave up half his stake in the Taj to bondholders in exchange for support in reorganizing his debt, according to the Taj’s annual report for 1992.

Large institutions took the brunt of the losses. But many small-time investors who had bought the bonds, directly or through retirement funds, also suffered losses, according to Bryant Simon, a professor at Temple University and author of "Boardwalk of Dreams: Atlantic City and the Fate of Urban America." So did the small-business owners who sold Trump paint, equipment, food, limousine services and much more. Many were eventually paid only a fraction of what they were due.

“He was a brutal and ruthless negotiator,” Simon told The Post. “People paid the price.”

Trump acknowledged that he drove hard bargains but said he created many opportunities for lots of people in Atlantic City.

“I wasn’t the nicest person on earth,” he told The Post. “Many of these same people, if not all, made a lot of money with me.”

On March 9, 1992, Trump’s Castle and Plaza casinos also filed for bankruptcy protection.

To resolve those debts, Trump gave up half of his stake in each casino to his lenders. As part of his reorganization, the casino commission put him on a short leash, requiring him to file regular reports about his other businesses, delinquent taxes and personal spending. Trump eventually sold the Trump Princess yacht, his Trump Shuttle airline and other holdings.

Even in the face of Trump’s obvious financial instability, the commission allowed him to keep his gaming licenses because “he was too big to fail,” said Perskie, the former commission chairman. “The consequences for the city and the industry, and everything we cared about, would have been horrific.”

In his recent interview with The Post, Trump emphasized that his companies were not alone during the long downturn in the gambling industry in the city, saying that a number of other casinos also declared bankruptcy.

“I was able to take my great casino empire, which makes me far and away the number-one player in Atlantic City, and bring it through a horrific storm,” Trump wrote in “The Art of the Comeback” in 1997.

At its peak, Atlantic City had 12 operating casinos. Today, there are eight left. Trump is no longer involved, having sold his interests or given up equity through bankruptcy proceedings years ago. The Castle is thriving under new ownership, the Plaza is closed, and the Taj is operating under supervision of a bankruptcy court.

“Trump was welcomed with open arms by everybody and provided the sense he was able to do everything he promised,” Perskie said. “His name and his legacy in the city were significantly tarnished. The business community and regulators no longer accepted the music of the Pied Piper.”

Over the years, Trump has modified his business approach and rebounded with a focus on selling himself as a brand.

He now claims that he is worth $10 billion. Trump has developed a dedicated following, in part because of his brashness and wealth. He owns or has a financial interest in properties around the world.

When talking about his legacy in Atlantic City, he expressed no regrets. “The Taj Mahal was a very successful job for me,” he told The Post.

“It’s not personal. This was just business,” he said. “I got out great.”

Alice Crites and Walter Fee contributed to this report.