Double or Nothing: How Two Friends Risked It All to Buy One of Las Vegas' Legendary Casinos (18 page)

Well, you get the picture.

Everything about the shrine to Tilman Fertitta in front of me screamed the word “I.”

Everything I knew about Frank and Lorenzo, their family, and their business expressed the word “we” without them even having to say it.

After a few minutes, Tim, Ed, Zach, Todd, and I were ushered upstairs to the hugest office I've ever seen. It had to be sixty feet long by thirty feet wide with twenty-foot ceilings. There was room enough for three offices, and it easily contained a large desk, a large sitting area, and a large conference table.

“Gentleman, gentleman, how y'all doin'? Welcome. Welcome.” Tilman Fertitta greeted us with a Texas-sized helping of charisma. This was a guy who started out selling vitamins, moved on to hotels, restaurants, and real estate, and created a $700 million empire.

We sat at the conference table, went through the customary pleasantries, and then Tilman explained why he'd made the offer and flown us in. He wanted to grow his company, he said,
and at the same time lift his stock price. He said he could go out and build a large number of new restaurants for between $250 and $275 million, but that there was a more efficient way to grow—to buy a gaming company.

This made perfect sense. Gaming companies are valued more highly than restaurants because they have better margins and higher cash flow. So Tilman could expand his company much more rapidly by buying The Nugget. At the same time, he'd attach a higher multiple to his stock and create a company with a broader base.

Pulling this off, Tilman continued, was not going to be a problem. He said he'd already done a debt deal and raised hundreds of millions of dollars for just this purpose. His tone made you think he could pull the cash out of one of his desk drawers.

If Donald Trump lived in Texas, he'd be Tilman Fertitta. Everything about Tilman's presentation made the word “large” larger than large. He had an uncanny way of finding just the right opening to point out that his home had more square footage than any other home in the most exclusive of neighborhoods. On one hand, it didn't make sense. Why tell people you wanted to do a deal with how rich you are? It could only encourage them to ask you for more money. On the other hand, his method was obviously successful. Maybe the idea was to make us feel a sense of awe in his presence.

Whatever you think of the guy, a part of you has to respect him. He'd come up with nothing and made it all by himself. He was one smooth salesman. His remarks easily transitioned into compliments about what we'd done with The Golden Nugget—which gave him an opening to ask about us.

What he really wanted was to see our company's numbers. He wanted to make an offer that wasn't just bait on a fishhook. He also wanted to mesmerize us if he could and move the pro
cess as quickly as possible. That way, we wouldn't have the time or the inclination to open the door to other bidders. The more bidders, the more Tilman knew he'd have to pay.

We began talking up The Nugget, but we were a little elusive.

Then came the cigarette that changed everything.

Tim wanted to smoke, and he asked if he could do so on Tilman's balcony.

“Let me join you,” Tilman said.

They were gone for about fifteen minutes. At the time, I didn't hear a word that was said. But looking back, those few moments set a lot of different forces in motion.

“Of course,” Tilman told Tim on that balcony, “we'd like to keep all this confidential.” Tim immediately understood the ramifications of this sentence. Underneath “we don't want anybody to know about this” was really “you're not going to tell Frank and Lorenzo, are you?”

Tim wasn't sure how much Tilman knew about our relationship with Frank and Lorenzo. But at that moment, he had two thoughts. The first was that there was no amount of money that could possibly stop him from telling Lorenzo and Frank. Second, he knew that Tilman's obsession with competing in his cousins' backyard would be to our advantage.

“Tilman, there's no way I'm going to make a deal with you for The Nugget and not tell Frank and Lorenzo,” Tim said. “They're not going to find out by picking up a newspaper.”

If that pushed Tilman back, Tim drew him closer when they returned to the conference table. He pulled out the architectural drawings and began describing the details behind the 1,000-room tower and the new showroom.

As Tim became more and more animated, Tilman became more and more excited. He couldn't stay seated. When he
began to wander around the table, an image flashed through my mind. It was the image of Barry Diller. Diller used to get up and pace around when he was excited during the negotiations with some of us on Expedia's board of directors over the company's purchase price.

Tilman and Barry Diller didn't look anything alike. Barry walked around with a sweater draped over his shoulders. Tilman was casual in a mock turtleneck and slacks. But there was a familiar scent in the air, and I got a good whiff of it. It was the scent of a deal junkie.

Tim's phone may not have been ringing—but I could hear the theme song to
The Sting
. I started to wonder just who was going to get stung.

Tim became more and more enthused as he explained how the enhanced hotel in Vegas would be a springboard for Golden Nuggets around the country. The more excited he got, the more my face turned to stone. The affable guy who could learn the first name of your kids on a twenty-story elevator ride stopped talking. There was something about Tilman I just didn't trust.

By the end of the meeting, though, Tilman had gotten what he wanted. We agreed to show him our numbers so he could make a solid offer. And I definitely sensed that Tim was leaning his way.

When Tilman offered his helicopter to fly us to the airport, it seemed as if he was determined to keep the home court advantage even after we left his office. I told him that wouldn't be necessary because I had to go back to the hotel and pick up my clothes.

“Ohhhh, Tom, a helicopter ride would be great!” Tim said in front of Tilman. “We could beat all the traffic!”

If there was ever a time I wanted to be stuck in traffic, it was precisely that moment. I was in no hurry to go anywhere.

I just couldn't understand why Tim was so eager to sell his dream. Had he burnt himself out? It seemed like he'd recovered from the loss to Mr. Royalty, but maybe he needed more time. As I chewed on all this, I also worked over my doubts about whether or not I wanted to sell, and whether $275 million was the appropriate price.

I'd begun to get a feeling that the number should be even higher. After all, we'd put a lot into the property. There'd been an amazing upsurge in the Las Vegas real estate market over the last year. Besides, Tilman was offering a deal based on our cash flow. If our flow was higher by the time he got a gaming license and was approved to make the transaction, he said, his price could climb as high as $290 million. Well then, as long as he brought it up, maybe $290 million was where the negotiations should start. It was time to do some serious research about that number. It was time for some due diligence. As usual, my due diligence drove Tim crazy. Needless to say, it wasn't long before Tim and I had a meltdown.

“Look, Tom, you don't need a complex formula here. This deal offers to put more in our pockets in one day than we could have hoped to make over the next six years. And that's with everything at The Nugget going
perfectly
over all that time.”

“Tim, all I'm saying is that this decision should be made with extreme care. I don't want to look back a year or two from now with regrets. This was your dream, remember?”

“That's right, Tom, I'm the one who wanted to buy the casino in the first place. I'm the one who went through all that crap to get the gaming license.”

“Oh, and I haven't been with you every step of the way? Screw that!”

“Tom, why are you being so hardheaded and stubborn? Why are you holding us back?”

“All I'm saying is that this is worthy of a fair discussion. There's no reason to sell if we don't get the right price. We've put our lives into that hotel, and he's got to pay big-time to take our names off it.”

“Tom, are you looking for a way to get a higher price, or a way to not do the deal?”

“All I'm saying is we should take our time and think this through. Are we going to let Tilman determine the price? Maybe
we
should start at $290 million.”

“Tom, I'm not rolling over and handing him the keys for $275 million. It's his
first
offer. Can't you see? He's obsessed with getting into Vegas. A guy who builds his own shrines will pay whatever it takes. Look, we've got a chance to make a big score here. Why slow it down? Why fuck it up?”

They say that Abbott and Costello hated each other. They say that when Abbott was scripted to hit Costello during their comedy routines, he really belted him. But in spite of the language and the screaming, our meltdowns were never personal. They were simply our way of trying to find the best direction to move forward—though a moment would occur a few weeks later that would take our friendship to the brink.

At this point we were the gas pedal and the brake pedal simultaneously punched to the floor. The smell in the air was burning rubber.

We'd come full circle. Only a year before, Tim wanted to pay more money than I felt comfortable with to buy a casino, and I had to slow him down to the point where The Nugget became available at a price that was right for us. Now, if I did want to sell, I felt like I had to slow him down to get the price as high as Tilman would possibly go.

Anyway, the argument was the storm before the calm—before the calm before the storm.

The calm came when Tim called Lorenzo and asked him to swing by The Nugget to talk about something he didn't want to discuss over the phone. Naturally, Lorenzo wondered what was going on and drove over right away. When he sat down with Tim, he was both startled and not surprised at the same time.

He'd heard rumors that Tilman wanted to get into gaming and he knew about Tilman's interest in The Nugget in Laughlin. Word was swirling around town that Tilman was looking at the Riviera on The Strip. What astounded Lorenzo was that Tilman had set his sights on our property.

When the shock subsided, Lorenzo could only smile. How could he not be happy when his friends were about to make a huge score?

The next morning, Lorenzo phoned Frank to tell him everything.

Before he could finish all the details, Frank had already made some mental valuations and calculations. “At that price,” he said, “
we
should buy it.”

T
here was a moment when I first moved to Las Vegas that makes me realize just how outlandish the dream to own a casino had become. Back then, Tim was still driving a crappy Chevy, and I was still the square from Barnsville. We'd just become partners in his hotel reservation business when we drove down The Strip and passed Caesars Palace. “One day,” Tim turned to me and said, “we're gonna own our own hotel-casino.”

I stared up at Caesars and started laughing. Tim got pissed.

But what were the odds that a couple of guys making $25,000 a year could pull something like that off? What were the odds that we'd go on to buy The Golden Nugget and then have a chance to sell it in less than a year for more than $50 million in profit? And what were the odds that the two companies competing for The Nugget would be run by cousins with the last name Fertitta?

When news reached me that Frank and Lorenzo were inter
ested in buying The Nugget, I was taken aback. Just as wide-eyed as I was on the day when Tim first told me about Tilman's offer. Only this time, another emotion flooded through me—relaxation.

All the tension drained out of me, and everything fell into place.

I immediately adjusted to the fact that we were going to sell. My fears that Tim might be seeing the sale as an easy way out after the beating we'd absorbed from Mr. Royalty were gone. They'd been pushed aside by Perry's reaction. He, too, sensed the twice-as-sweet nature of the deal. I'd also come to understand Tim's thinking a little better after Andre reacted to the idea of selling with disbelief.

Andre placed a huge value on the adrenaline that came with the partnership and the place. To him, it was like he was surfing with friends who suddenly wanted to quit when he couldn't wait to see what the next wave looked like. “Don't be a bitch!” he said to Tim.

“Andre, this is only the first offer, and it's probably more money than we can make in the next six years,” Tim replied. “And I don't see you in the office with me ninety hours a week.”

“Oh,” Andre said with an understanding smile. “Then
please
sell.”

What it took me time to realize is that Tim had not morphed into Steve Wynn or Mr. Fertitta. He'd turned into Kirk Kerkorian, who'll buy, sell, and rebuy the same property depending on the market value at the moment. “You cannot be emotional about a building,” Kirk has said. “The only way to approach a deal is if it's good financially.”

That's exactly where Tim's head was. He had already sold his baby when he sold Travelscape. Maybe Tim's dream of owning
a casino had been achieved the day he let the roulette player put down the bet that nobody else in Las Vegas would take. It wasn't going to get any better than that for Tim at The Nugget—especially now that the limits had been strapped down.

If Lorenzo and Frank were doing the buying, everything would be as comfortable as a handshake.

With the purchase price in Tilman's deal memo tied to present and future cash flow, Landry's $275 million offer was squishy. There really wasn't an exact number, and from our perspective, our cash flow was and would be lower than ideal. That was because of the $8 million loss to Mr. Royalty in the third quarter, a huge marketing budget put in place to build a long-term business, and a lot of other transitional costs. Our marketing budget was three times what it would've been if we had planned on selling. That was a huge advantage for Tilman when he tied the deal to cash flow and there would be no way we could make up for it in the short term. Everybody knows that a business doesn't operate at maximum efficiency and profitability when there's a Just Sold sign on the property and it's transitioning owners. All these abnormalities were being held against us.

There were no ties to cash flow in Lorenzo and Frank's offer of $275 million, and there was nothing squishy about it.

Even if you stripped away the friendship and the solid nature of their offer, there were other good reasons to complete the deal with them. Frank and Lorenzo already had a gaming license in the state of Nevada. It might take Tilman more than a year to go through the arduous licensing procedure—and there were no guarantees that he'd get one. At the very least, the licensing process would hold up the transfer of property to Tilman for about a year.

What's more, Frank and Lorenzo's company has been
ranked by
Fortune
magazine as the eighteenth-best company to work for in America. That would be reassuring to anyone employed at The Nugget. The environment was so pleasant at Station Casinos that employees saw no reason to unionize.

In fact, this was one of the few sticking points and complications. The Golden Nugget
was
unionized, so Frank and Lorenzo needed time to figure out how a hotel with unions would be merged into their existing structure. Until this was settled, we needed to figure out a way to keep Tilman at a distance without cutting him loose.

In the meantime, we had lawyers start the preliminary work. We tentatively agreed to sell The Nugget to Station Casinos for $275 million. If Tilman pushed that number higher, the price would
always
be $20 million less than Landry's best offer. It was worth the $20 million to us to sell to friends whom we could trust, who had a gaming license, and who could take over the property almost immediately. In my mind, taking $275 million from Frank and Lorenzo wasn't equivalent to taking $295 million from Tilman. It was better.

Lorenzo, Tim, Frank, and I shook hands. There's been more friction between the four of us fighting over a dinner check than there was in working out the basic details of this deal. These were not handshakes. These were handshakes that turned into embraces.

The next day, Tim opened a suite at The Nugget so that Station's executives and analysts could examine our numbers. When a spy (there's no other way to describe the bastard) in our hotel saw these execs come through the lobby, it was only minutes before Tilman was on the phone and howling.

So what? Tim responded. We didn't have a deal with you.

It may have been all settled between us and Frank and Lorenzo.

Not so with Tilman.

A phone message came our way through an intermediary.

The message was this: “No matter what the deal is that you're working on with Station Casinos, Landry's is willing to pay $20 million more.
And,
no matter what Station Casinos offers in the future, Landry's
will always
be willing to pay $20 million more.”

The words must've sounded bold and dramatic when first proposed in Houston. But Tilman could have no idea that our agreement with Frank and Lorenzo stipulated that we'd sell to Station's for $20 million
less
than any offer Tilman made.

The message reached Ed, our point person and buffer on the deal, late at night through the intermediary. The intermediary asked Ed to promise that he'd get the message to Tim and me.

Tim was sleeping at the time. He was awakened by a piano tinkling the ragtime theme to
The Sting
. He reached for the phone and listened to the $20 million message. A minute later, he hung up. In Tim's world, a man's handshake is his bond. In Tim's world, the deal was done. Tim set his head on the pillow and easily drifted back to sleep.

The next morning, Ed returned the message. He told Landry's general counsel, Steve Scheinthal, that we were going ahead with plans to sell to Station Casinos. He explained that we weren't going to break our bond with Frank and Lorenzo over $20 million. Even putting aside the friendship, there were factors like the uncertainty surrounding the gaming license and the time it would take to transfer the property to Landry's that had influenced our decision. Ed thanked Landry's for its interest and closed the discussion.

Or so we thought.

Later that day, Scheinthal called Ed back.

“Has the deal been signed?” he asked.

“No,” Ed said. “At this point, we're bound by our word. We're working on the final documents.”

This left a slender crack, just wide enough for Tilman to slide a fax through.

Scheinthal explained to Ed that Landry's had just concluded an emergency board meeting. Landry's was prepared to offer $325 million for The Nugget. On top of that, Landry's would place $30 million in escrow. If the deal fell through because Tilman couldn't get a gaming license, the money was ours. No questions asked.

“Will you make sure the offer gets to Tim and Tom?” Scheinthal said.

“If you want me to go to Tim and Tom with this,” Ed said. “I need it on paper.”

The fax came through the slender crack. It said $325 million. That was more than $100 million more than we'd bought The Nugget for a year earlier, and it was $50 million more than Frank and Lorenzo had agreed to pay.

Ed told me the news.

I never thought an offer that gave you a chance to make more than $100 million dollars could make you feel so torn and shitty.

I called to tell Tim.

“We gotta go talk to Lorenzo,” was all Tim could say. His voice sounded like my stomach felt.

Lorenzo was on his way to dinner with his wife, Teresa, when Tim phoned and explained that we needed to see him.

“Get the guys,” Lorenzo said, “and meet us at Piero's.”

“
This
,” Teresa said with a knowing smile, “has all the makings of a romantic night out.”

Piero's is a Vegas institution. Waiters in tuxedo jackets. A
long bar. Antique pine tables. A great wine cellar. An owner who sits at your table and eats the pasta off your plate and shares your wine and has a voice that's impossible to describe and impossible to forget and a face that has proudly seen seven lifts. Sinatra used to hang at Piero's. When he was a long way away and in the mood, Frank used to have the veal milanese sent to him on the restaurant's china via his private jet. The mayor's victory party was staged at Piero's. Wayne Newton called the place home. Portions of the movie
Casino
with Robert De Niro and Joe Pesci were filmed there.

So it was fitting. The history of a friendship was about to be tested in a joint with some history to it.

Lorenzo and Teresa were already seated when Tim arrived. Ed and I were on our way. But this wasn't going to wait. Immediately, Lorenzo could see the struggle in Tim's eyes.

You've got to hand it to Tilman. He knew he had to do something dramatic to insert his “I” between our “we.” That fax was more drama than anyone of us expected. Tim was hoping that Lorenzo and Frank could bump their offer up to within $20 million of the $325. That would allow us to keep our end of the deal.

When Lorenzo heard about the fax, he immediately phoned Frank. Then he turned back to Tim. There was not the slightest hesitation in his voice. “Even at $20 million less,” Lorenzo said. “it's not a good deal for us.”

Lorenzo could see how lousy Tim felt. When Lorenzo was captain of the Bishop Gorman football team, he made sure that when a player committed a penalty he got an emotional lift from the ten guys around him when he returned to the huddle. Though Tim had committed no penalty, that's the attitude Lorenzo took.

“This is a great offer,” Lorenzo told Tim. “We're not going to stand in your way.”

There was no sense of family competition with Tilman as far as Frank and Lorenzo were concerned. They only saw the deal in numbers.

“If $325 million is the number, you gotta take it,” Lorenzo said, “…just make sure that
that's
the number.”

Friendship had trumped all. But there was no celebration at the size of Tilman's offer as we walked out of Piero's. The tension was back. We were no longer dealing with friends.

“Let's call in the guys from Skadden, Arps,” Tim said. “It'll cost more, but we gotta take extra precautions. This contract has to be triple, quadruple, 100 percent ironclad
.
If we make this deal, I don't care if Martians invade Fremont Street, Tilman's got to pay.”

Skadden, Arps, Slate, Meagher and Flom is a premier law firm out of New York specializing in these types of negotiations. Everything about our dealings with Barry Diller and Microsoft had prepared us for this moment.

Even though Lorenzo and Frank had released us from our agreement, we made no quick phone call to Tilman. The next day, Tilman called Ed to find out why. As smart and wily as he is, he couldn't camouflage the scent that he
had
to win this competition with his cousins.

“Ed, this is not the way the world works,” he said. “The person who pays the most should win.”

Yes, he had the highest bid, but to us that wasn't the issue. We needed to know what the value of The Nugget truly was before we sold it. We could think that $325 million was a great deal and that Tilman was overpaying to beat out his cousins. But the value of The Nugget really had not been established.
There's a price of entry into Las Vegas, and I sensed that Tilman was willing to pay that price. We knew he was looking at the Riviera. Word was, the Riviera was on the block for twice the money that Tilman was offering us. Tilman was going to pay for The Nugget exactly what it was worth to his company to have it.
That
was The Nugget's value. We needed to find out what
that
number was.

There was one sure way. Ed called Landry's and explained that its $325 million offer was the highest, but that something new had come up. (Another party
was
expressing interest.) “If you guys can go up another $10 million,” he said, “that would put you over the top.”

Not only did we owe it to ourselves to get the best possible deal. But we remembered Barry Diller's tactics. If you sense that somebody is going to try to drop the price to the cellar down the road, it's a good idea first to try to push it through the roof.

Landry's came back and said its board would not approve another $10 million. It could only go $5 million more.