The Trump International Golf Club in Puerto Rico boasts lush tropical grandeur, breathtaking ocean views and a PGA-caliber course offering players an “incomparable touch of Trump.”
But in recent years the resort has struggled, taking on tens of millions of dollars in debt. Last week, it filed for bankruptcy. The failure threatens to cost the island’s taxpayers, as the project was financed with millions in government-backed bonds. Its 90 or so employees face an uncertain future.
Yet for Donald Trump, the deal was a total winner.
He put no money down but took a cut of the annual revenue — mostly for allowing the resort to bear his name.
“We made many millions of dollars on it but never invested a dime,” said Trump’s son Eric, an executive in the Trump Organization.
As he seeks the Republican presidential nomination, Trump is promoting his success as a real estate mogul to argue that he has the proven skills to fix the nation’s problems. He brags that he made his money “the old-fashioned way,” building iconic properties such as Trump Tower in Manhattan and, soon, a luxury hotel in the Old Post Office Pavilion blocks from the White House. In vowing to put a “great wall” on the U.S.-Mexico border, Trump says, “Nobody builds walls better than me.”
But as the Puerto Rico example illustrates, Trump has become increasingly reliant on a different business model — one in which he makes money by harnessing his celebrity brand rather than risking capital in real estate investments.
Dozens of properties around the world bear his name or will after they are built, with some — a golf course in Dubai, a posh resort in Hawaii, gleaming condominium buildings in Panama and Istanbul — giving Trump cachet and big profits if they succeed but allowing him to avoid liability if they fail.
It is unclear whether Trump’s presidential campaign, characterized by bombastic attacks on Mexican immigrants and Sen. John McCain’s war record, will help or hurt his brand. It has cost him a number of business deals, with Macy’s, NBC and the Professional Golfers’ Association cutting ties. But Trump has only become more of a media sensation, and he has rocketed to the top of the crowded Republican field.
The campaign “has had an immensely positive impact” on the brand, Eric Trump said. Recalling his visit this week to a Trump golf course in Charlotte, he added, “I walked into the grill room and got a standing ovation.”
Felipe Yaryura, chairman of a development company that has paid Trump to use his name on a planned condominium project in Uruguay — with a spa, two indoor swimming pools, a cigar bar, a tennis court and a rooftop helipad — said he is not concerned about the current controversies.
“People love the Trump brand, which they know from visiting New York City and Miami,” Yaryura said. “It gives them a warranty that this will be a high-quality project.”
Trump has described his name-branding strategy has hugely important to his overall profits.
A one-page financial summary he issued when he launched his campaign last month valued his “real estate licensing deal, brand and branded developments” at more than $3.3 billion, which would make it the largest single source of Trump’s claimed $8.7 billion total net worth as of 2014.
It is not possible to corroborate the number. In his official candidate financial disclosure form filed with the Federal Election Commission and released this week, Trump said the value of many of his licensing deals was “not readily ascertainable.” He told the FEC he earned income last year from 24 licensing agreements that extended beyond real estate to include home furnishings, menswear and energy drinks.
Trump’s representatives declined to explain how they calculated the number in the one-page summary, but they said that such licensing deals make up an increasingly large part of his portfolio.
Trump’s business model has relied on his ability to protect his brand identity — work that has required a ferocious legal strategy to go after critics and mimics with threatening letters, arbitration and litigation.
Since 2004, he has pursued 12 cases at the World Intellectual Property Organization, which enforces trademark protection for Web-site names. He lost just once, in 2007, when the arbitrator ruled that trumpfurniture.com did not violate any of his 700 trademarks, since none of his businesses at the time sold furniture.
Victories have included wins against a New Jersey pub whose owner had registered the Web site trumpwine.com and a British company that had registered trumpcard.com.
In a 2007 lawsuit against two California men who had launched a Web site called Trump’s Best Coffee, Trump’s lawyers laid out the full meaning of the brand: He is a “world famous real estate developer,” they wrote, “famous for his endeavors not just in real estate but in sports, gambling, entertainment and recreation.” His name, they argued, had “developed significant goodwill and trademark significance.”
As Trump has moved aggressively into selling his name to real estate projects over the past decade, that goodwill has translated into numerous lucrative deals — even when investors lost money.
At times, he has been sued by property owners who argued that they had been misled about the true extent of Trump’s involvement.
In 2013, he paid out an undisclosed settlement, widely reported at the time, to more than 100 investors who had lost deposits made to secure luxury condos in a Trump-branded development on Mexico’s Baja Peninsula that was never built.
A licensing agreement between Trump and the developer obtained by The Washington Post shows that Trump was required to invest no money, but he was paid $250,000 up front plus additional fees that rose to $1 million for various construction and sales milestones. He was eligible for even more, calculated according to a complicated formula tied to the success of the project.
But the agreement also allowed Trump to get out of the deal if the developer went bankrupt or if a large portion of the project was “damaged or destroyed by fire, act of terrorism or other casualty” and was not rebuilt.
The agreement required that Trump or his children make visits to publicize the project, though their travel costs were to be shouldered by the developer.
Trump and his daughter Ivanka were featured throughout marketing material boasting of their detailed involvement in the project. A video prepared for potential condo buyers featured Donald Trump declaring that Baja would be the new Cabo and bragging that people invest in “what I build.”
Alan Garten, general counsel at the Trump Organization, said that the true nature of Trump’s involvement in his licensing deals is always clear. In the Baja case, Garten said, the details of the license deal were spelled out in contracts signed by condo owners.
“His role in the project was specifically disclosed, not just once but in numerous places on numerous pages,” Garten said.
Garten said that most of Trump’s branded projects have been successful and blamed failures on the 2008 economic downturn.
The Trump Organization’s Web site now carries disclaimers on projects that are not owned or developed by the company. Of the 38 buildings featured on the site as part of the company’s real estate portfolio, 16 carry the disclaimer.
The Puerto Rico project that declared bankruptcy last week opened in 2004. Its construction was financed in part by $26.4 million in bonds issued by the Puerto Rican government and sold to, among others, the retirement fund of island teachers.
In 2007, as its debt began to mount, the small local partnership that owned the property approached Trump about attaching his name — and hopefully turning things around.
“We valued the name of Trump,” said Jorge Diaz, an owner of the property, describing Trump-affiliated golf courses as “the best in the world.”
Trump’s involvement brought a burst of optimism for some Puerto Rico officials who saw reviving the course as a way to bring some money into a distressed local economy.
Among the immediate benefits: Trump’s involvement helped the course win the right to host a tournament stop on the PGA tour.
“Puerto Rico is a fantastic place and deserves the best, which is what we will deliver,” Trump said at a 2008 news conference on the island. “Every detail will be important to me.”
Eric Trump, appearing at the same news conference, said that the Trumps would be “very actively involved in this development at all levels” and that they had “a very substantial equity contribution” in the project.
But public records filed as part of the bankruptcy show that the Trumps had no equity in the property.
Instead, records show that Trump and the local owners had a deal providing Trump with 12.5 percent of annual profits and 4 percent of annual operating revenue in exchange for the Trump Organization serving as manager of the golf facilities. That meant that even if the golf course lost money, a portion of revenue would still flow to Trump.
Asked in an interview this week to explain why he said the Trumps held equity when they did not, Eric Trump said the initial plan was to invest.
“There was a time when we intended to buy up units there,” he said. “But deals can change over time, and over nine years they can change substantially.”
Ultimately the club lost money, declaring bankruptcy last week amid an ongoing economic crisis in Puerto Rico. In court filings, the club listed assets of $9.2 million and debt of as much as $78 million.
If the prospect of a Trump-named property entering bankruptcy threatened to cast a cloud over Trump’s portrayal of his business record just as his presidential campaign was taking off, his business was quick to disavow any blame.
“We merely licensed our name for a fee and have nothing to do with the ownership, development or entity,” Eric Trump said in a statement released shortly after the bankruptcy.
Garten, the Trump lawyer, said the Trump Organization closely monitored the project for quality control and managed the golf course. “That is certainly a high level of involvement,” Garten said. But, he added, “that does not make us the developer.”
Garten blamed the project’s bankruptcy on the troubled Puerto Rico economy and said Trump continues to hold the developer in high regard. Diaz, the course partner, said the club and Trump have an “excellent relationship.”
Bond documents show that Trump has the right to revoke the use of the Trump trademark if the project goes downhill. That includes if it files for bankruptcy, if it becomes insolvent or if one of the principals is convicted of a felony.
Either side can pull out if the other becomes “an object of public scorn or ridicule.”
So far, Trump’s performance on the campaign trail has not deterred his Puerto Rican associates. In fact, they hope he can be a savior again — and buy the property outright.
Alice Crites and Anu Narayanswamy contributed to this report.