Double or Nothing: How Two Friends Risked It All to Buy One of Las Vegas' Legendary Casinos (7 page)

The bankers started backpedaling, hoping to keep their commission. No, no, they said, you're seeing it all wrong. It's the fluctuations in the market. Just wait two weeks, they insisted, and the time for your IPO will be ripe.

But the game was over. When you walk off a court after the final buzzer, and you haven't played, you can never get that time back.

Tim and I returned to Las Vegas.

It wasn't possible to stay angry or be depressed for long. Word of what happened spread with the wind. Soon it reached the ears of Barry Diller, who knows an opportunity when he smells one. We had to pay attention.

Barry Diller is a billion-dollar American success story. He's the guy who dropped out of UCLA after one semester, started to work in a mail room, went on to invent the made-for-TV movie, and hustled his way up to become chairman of Paramount Pictures. He had a hand in classics like
Saturday Night Fever, Grease,
and
Raiders of the Lost Ark
, and was responsible for the creation of the Fox Broadcasting Company. Diller was also quick to sense the power of the Internet. Over time, he amassed an Internet conglomerate that included Hotel Reservations Network, Home Shopping Network, and Ticketmaster.

Travelscape fit right in his portfolio—and he was willing to pay more than a hundred million bucks for it.

No entrepreneur who starts a business with a desk, a phone,
a chair, and a pillow is going to look away when somebody offers him more than $100 million for it. But there were other reasons to take the money and go on our way. The pace of technology was moving so quickly that even a powerful company like ours could be overwhelmed and replaced in a matter of months. We'd seen it happen all around us.

A classic example is what happened with encyclopedias and the Internet, and how both led to a travel company called Expedia. When Tim and I were in high school and college, we'd go to the twenty-nine-volume
Encyclopedia Britannica
on the library bookshelf to do our research papers. During that time period, Microsoft approached
Encyclopedia Britannica
about an electronic partnership, but the folks at Britannica couldn't see the future. They declined. Microsoft purchased the rights to another reference library called
Funk and Wagnalls
, and in 1993 used its contents to create an electronic encyclopedia on CD-ROM called
Encarta
. The project was run by a guy named Rich Barton, and it was stupendous. Because 90 percent of it was devoted to pictures, movies, and audio clips, it pole-vaulted over anything on a library bookshelf.
Britannica
, an icon that had been published since 1768 and was once described as “beyond comparison because there is no competitor,” would in the mid-1990s be sold as a company below book value. Not long thereafter,
Funk and Wagnalls
would stop printing. The first avalanche of the electronic word over the printed word had occurred. The avalanches were only beginning.

Only a year after
Encarta
came out, in 1994 a Web browser called Netscape arrived. Its interface enabled the owners of diverse computers to access this new thing called the Internet. When it did, the
Encarta
CD-ROM was rendered virtually obsolete. Information that you could get by purchasing the CD-ROM was now available on the burgeoning Internet through Netscape.

Only a year before,
Encarta
had looked like a moon landing of technology. Now it suddenly seemed like the Nina, Pinta, and Santa Maria. Netscape was the future. It launched an IPO in 1995 at $28 a share and shot to $75 on the first day of trading. Netscape's new technology allowed Web sites to send weather and stock updates directly to a user's desktop. In the mid-1990s, its user share hovered as high as 85 percent.

This was obviously threatening to Microsoft, which had its own Internet browser called Internet Explorer and a very limited CD-ROM in
Encarta
. Microsoft wanted to see a world with a computer on every desktop and its software in every computer. It wanted people to access the Internet through its own browser: Internet Explorer. It was involved in a multibillion-dollar game of checkers. It leaped over Netscape by packaging Internet Explorer within its software so that it was virtually free. No longer would anybody have to pay Netscape for the privilege to browse the Internet. Suddenly, Netscape was virtually useless. It would sue Microsoft for monopolistic practices and ultimately was sold to America Online. But the dots are easy to connect. By the end of 2006, the usage share of Netscape browsers had fallen to
1
percent. Not only did Microsoft triumph (although it did have to pay Netscape a settlement), it was also smart enough to rethink
Encarta
.

Encarta
had a huge geographical component. A page containing information about Mexico could be electronically linked to a site that sold travel south of the border. Ultimately, a huge electronic travel company backed by Microsoft would be spun out of this connection. That company would be called Expedia.

The point is that if you weren't on the cutting edge, or flush with a lot of money to reformat quickly, you were very vulnerable to the next technological avalanche. Barry Diller was offering to pay us $120 million to remove that vulnerability.

Neither Tim nor I had met Diller when he offered to buy Travelscape. At first, he sent in a team of people to study our company. That's fairly common. If you want to buy a company valued at more than a hundred million bucks you want to know exactly what you're getting.

But Diller owned our top competitor: Hotel Reservations Network.

Opening your books to your main rival never sits well in your stomach. Especially when the weasel-of-a-lawyer asking you questions over lunch is the type to throw his tie over his shoulder before he bites into a sandwich so he doesn't stain it with ketchup. Those lunches were just creepy. Some of our employees, who'd met the people at the company they'd be merging with, were not particularly comfortable, either. They never came out and said so directly, but an uneasy spirit hovered over the office—a spirit that we were too busy to recognize and address. We were working eighteen hours a day, moving through the Diller deal, and handling the company's day-to-day operations. So alarm bells didn't go off when we asked Mr.
In
-credible “How ya doin', Edward?”

And he responded “Okay.”

But that's what happens when you're being pulled in too many directions. The whole process felt like the sort of investigation you get when you apply for a gaming license in Nevada—and that has been described as a visit to the proctologist.

Our negotiations with Diller went on for three months and got down to the paperclips. Finally, everything was set. Diller offered us $120 million for the company. On a Thursday, we were supposed to fly to New York and have dinner with him. On Friday, we'd sign the contract.

Less than twenty-four hours before we were to board the plane, Tim got a phone call from one of Diller's representatives.
I couldn't hear the whole conversation. I could only pick up what was going on from Tim's responses and his facial expressions. But it's not difficult to get the gist of a punch to the gut.

“Our board is having second thoughts,” said Diller's rep. “It thinks the valuation is too high. And it's not going to vote for the deal. It's offering $90 million—less your company's $8 million debt.”

“What kind of bullshit is this?” Tim said. “You get me pregnant on the idea of selling and then at the last minute you're gonna haircut it?”

“I don't want you to think this is intentional. I know you're upset. You have every right to be. It's not me. It's the board.”

“Look, we made a deal for $120 million. And as far as I'm concerned, a deal is a deal.”

“But the board won't vote for that deal.”

“Well, then, fuck it. We don't got a deal.”

“Look, just think about—”

“There's nothing to think about. We went through three months of due diligence in good faith. You gave me your word. A deal is a deal.”

“Look, Tim, $82 million is a lot of money.”

“Yeah, and the $38 million that you fucked us out of is a lot of money, too.”

Tim's words lifted me right out of my chair. My fist cut through the air, and I was screaming “That's right!” without any sound coming out of my mouth.

“Just think about it overnight,” Diller's rep tried to soothe Tim, “and we'll talk in the morning.”

“No, we won't,” Tim fired back. “Unless you tell me right now, on this phone call, that we have the $120 million that we agreed on, we got no deal. I'm not sleeping on it. I'm not calling you back. I'm not gonna try to calm myself down. This is
it. Either it's $120 million on this phone call or don't call me back.”

“Tim, I'm not authorized to give you that deal.”

“Well, then we got no deal!”

Then Tim slammed down the phone.

The earth seemed to pause. Tim and I stared at each other in silence and thought, “What the fuck just happened?”

“I think,” Tim finally said, “we just blew the deal.”

Our disbelief turned to devastation. For three months, we'd handed over nearly every scrap of company information to a top competitor. Now we had nothing, and we were numb.

But it was only a minute or two before our blood was flowing again. “Fuck 'em! We'll just roll up our sleeves and make this company bigger than ever.”

While we were lifting ourselves out of the muck, the phone rang. It was Diller's rep.

We just let it ring…and ring…and ring.

It wasn't until years later that we found out what was going on at the other end of that phone line.

Tim didn't know it, but he was on speakerphone. Diller, members of his board, and some bankers were listening to Tim's every word.

Diller didn't think we'd have the balls to turn him down. He's a deal junkie, and he was taking a shot at us, knowing that a lot of guys in our situation would've been happy to be set for life.

“Yeah, we want the deal,” Diller had told the room before the call. “But these guys are young. Trust me, they'll take $82 million.”

Even after Tim hung up in fury, Diller said, “Don't worry. He'll call back.”

The call became famous among some of Diller's bankers
because Tim was the only guy they knew who'd told Barry Diller to go fuck himself.

Twice within six months we'd gotten to the goal line only to be repelled just before we could score. Little did we know that the failed IPO and the Diller debacle were preparing us for what was coming our way, way down the road. I suppose you can rationalize what Diller did to us with motivational quotations. As Henry Ford once said, “Remember, that the airplane takes off against the wind, not with it.”

But as we turned off the lights and closed the door to Tim's office that night, we felt like we were moving in slow motion. We headed home exhausted and beaten men.

A
fter the beating we'd just taken, the last company you'd think we'd want to see on the opposite side of a negotiating table would be Microsoft. That would be kind of like a fighter getting flattened by the number nine contender, then the number ten contender, then getting up, rubbing his jaw, and saying, “Bring on the champ!”

Microsoft had not only squashed Netscape. It was rolling over nearly every company in its path on its quest to dominate the software market. If a rival with an innovative product wouldn't sell out to Microsoft, there was no mercy. Microsoft simply built a replica into the next version of its own software and made the competitor irrelevant—which is one reason it was being sued for monopolistic tactics by individual companies, twenty states, and the U.S. government.

But we had something that couldn't be replicated by a software
developer at three in the morning behind beads hanging over an open doorway on Microsoft/Expedia's sacred fifth floor in Redmond, Washington. We had the relationships in Las Vegas and a lock on the rooms. We were selling two million a year, and it would cost Microsoft millions of dollars and years of effort to duplicate that.

We also had a friendly history with Microsoft. For years, we'd made each other money. Early on, we bought advertising space on the travel page of Microsoft's Internet portal, MSN.com, and the hotel page on Expedia.com. At the same time, we sold a lot of hotel rooms when November came around for the Comdex Expo in Las Vegas, a platform Microsoft liked to use to launch its products. Comdex was the one of the largest computer conferences in the world at the time and seemed to take place under Microsoft's shadow. The company actually rented out the entire Mirage for its employees, who all walked around in khaki pants and blue shirts. The first time Tim saw these guys, he turned to me and said, “And I thought
you
were a square!” But we had to respect what they'd created. Thousands flew in from around the world to hear Bill Gates give the keynote address at the conference, and we had the room receipts to prove it.

So we were actually in a good position when we began to talk to Rich Barton about selling Travelscape to Expedia. We had a solid relationship. We were now war tested. We had a cash offer from American Express for $100 million in our back pocket. And soon after the Diller debacle we'd brought in a chief operating officer who could walk among the Goliaths.

Steve Cavallaro had worked for large outfits like Harrah's and run the Fertittas' Palace Station. He didn't have a nickname, but I call him The Sniffer because it didn't take him long to sniff out employees like The Weasel and The Floater, and weed out others who didn't do much and were great at cam
ouflaging it. He scrutinized deals we'd made with distributors and renegotiated them in our favor. He was the type of guy who could be counted on to dot every
i
and cross every
t
in a negotiation with Microsoft.

Everything Tim and I had been through during the failed IPO and the negotiations with Diller had changed our outlook on doing a deal. In a negotiation, everybody knows you're not supposed to throw out the first number. Why ask for $105 million if the person you're making a deal with is prepared to give you $200 million? But our recent experiences had taught us otherwise. It was ironic that some people saw Tim as a Vegas slickster. Tim was merely looking for someone he could trust. “Look,” Tim told Barton, “we'll sell you Travelscape for $105 million in Expedia stock. It's not our first number. It's our last number. So if you don't like the deal, let's just forget about it. We won't waste your time and you won't waste ours. We're not negotiating. A hundred and five million in Expedia stock means a hundred and five million in Expedia stock. That's the number.”

Barton immediately recognized the deal's potential. Expedia had airline contracts, distribution, and technology mastered. We had a huge customer base and a great hotel inventory built around the merchant model. It's hard to imagine now, but back then you couldn't choose from a full range of hotel
and
airline options on a single Internet site or build your own vacation package. A synergy of Expedia and Travelscape gave the world access to Expedia's airlines and our hotels. It was like introducing french fries to a hamburger. Barton could readily see that the two companies combined were worth way more than they were independently. It was one of those deals where 1 + 1 = 50.

We began to work the details out with Rich. The Sniffer spent a few weeks dotting every
i
and crossing every
t
. We were all set to go. Then, just as we prepared to fly up to Seattle to close the deal, Tim got a terrible case of the flu. You can imagine how sick he was to stay in bed. But executives at Expedia couldn't. They saw it as a negotiating ploy, and they didn't bring Barton to the table.

The Sniffer, two lawyers, and I walked toward a conference room in the law offices of Bill Gates's father, past hundreds of boxes reading: U.S. Government vs. Microsoft. That will get you thinking.

About twelve guys from Microsoft sat at the conference table behind laptops as we tried to wrap up the final half-dozen points of the deal. It seemed like we were making good progress through a long day of work. Late in the afternoon, we took a break. When we returned, one of their lawyers started leading the meeting as if we'd never been in the same room.

It was as if we'd left for the break on the one-yard line, about to punch it in for a score, and returned to find ourselves starting at the fifty and moving in slow motion. “Let's go back to these points,” they'd say in the most methodical way. Was this the same old story? They get the carrot halfway in your mouth and out comes the bulldozer. Or was it the genius of Microsoft? They just wear you down. It was hard to know. You couldn't even look these guys in the eyes. They were hunched over, concealed by their laptops.

Either way, The Sniffer was in a state of utter disbelief. He'd been in all kinds of big deals. He knew the routine. Everybody throws down a line in the sand. But compromises are always reached at the end. And when you're buying a company from someone who started it and has deep emotional ties, you've got
to do some serious massaging. Look the owner in the eye. Give on some points. Make the owner feel good.

All we could see was the bulldozer's steel plate heading straight for us.

The Sniffer slammed his hand on the table. “You're making no compromises whatsoever,” he said. “You guys don't know how to get a deal done. I'm gonna recommend to Tim and Tom that we take a different deal.” Then he walked out.

I sat in silence for about thirty seconds. I didn't quite know what to do. It was the first time I'd ever been in a negotiation like this. Sure, I'd haggled over hotel room rates with our suppliers. But this was on a different level. Our attorney, Peter Wallace, took charge. “We're going to take a break, and we'll let you know how to proceed.”

We met The Sniffer outside. He'd seen it for what it was. The Microsoft culture was used to rolling over everybody across the table, and we were across the table. It's not every day you blow a $100 million. This was the third time in less than a year that a nine-figure deal had slipped through our fingers.

We phoned Tim. “Are you ready for this?”

Tim was right behind us. We left a message with Expedia that we were headed back to our hotel.

Over dinner at the hotel, the phone rang. It was Expedia's chief financial officer, Greg Stanger. “Where are you guys?” he said. “We're all sitting in the conference room waiting to resume talks.”

The Sniffer and the lawyer were writing notes on my napkin, advising me what to say. I gleaned the information, but then there was a moment when I stopped reading, looked up, and became somebody who I wasn't only a half hour before.

“We're trying to get a deal done here,” Stanger said.

“You guys know what the issues are.” My tone was straight-
forward and completely reasonable. “When you're prepared to compromise, let me know. If I don't hear from you by early tomorrow morning, we're leaving at eight thirty.”

That night, I set my cell phone on the nightstand. Nothing. I tossed, turned, and woke up every two hours. Nothing. We headed to the airport the following morning. As we boarded the plane, my stomach felt as lousy as it could possibly feel without throwing up. I remember flying over Mount Rainier. It was a picturesque day. The Sniffer and the lawyers were trying to cheer me up, but I could barely hear a word they were saying. The detail I most remember about the ride is there was no turbulence.

When we landed, there was a message on my phone to call Tim. I dialed him immediately. “Where are you?” he asked.

“We just landed in Vegas.”

“Vegas! What are you doing in Vegas?” he said. “You've got to be up in Seattle to sign the contract!”

He was joking—and not joking. While we were in the air, he'd spoken to Rich Barton over the phone and ironed out the deal.

There was high-fiving and hugging and of course Tim couldn't resist a few digs. “What I
forgot
about doin' deals, most people never knew!” Joe Pesci couldn't have executed it any better. Only years later, after I'd met Tony and Danny Bennett, did I fully understand that I'd played an integral role in making the deal. At the time, I was just overjoyed it was done.

The deal was announced on January 31, 2000, the day after the Super Bowl. Tim and I had sold Travelscape for $105 million in Expedia stock. People have asked what it's like to make a hundred-million-dollar deal. All I can say is that the feeling really didn't hit until I saw the stock certificate months later.

What I do remember from that time is a moment that came
up when lawyers began to sort through the paperwork. They asked Tim and me for a document that showed our fifty-fifty split of the company. We had nothing to hand them. We'd never written one up.

“You mean,” the lawyers asked, “you don't have anything on paper proving your partnership in the company?”

It was impossible for them to believe that all we had, that all we needed, was a handshake on a frozen lake.

If all this sounds like a fairy tale, read on. Only a couple of months after we'd sold our company to Expedia, the Internet Bubble burst. Wall Street had finally realized that most of the tech companies were more concept than viable businesses, and there was a stampede for cover. Even investors who could see the fall coming were surprised by its severity. As the market bottomed out, companies formerly valued in the billions were suddenly declaring bankruptcy. The dot-com millionaires who'd borrowed against their stock to buy Lamborghinis and mansions went bust, and many a bandwagon investor lost everything.

As our Expedia stock skidded lower and lower, there was nothing we could do. We couldn't even sell. The shares we'd received in the deal were restricted from being sold—and the price plummeted before the restriction was lifted. So we simply watched as our stock sank with the rest of the technology market. But when it fell from $34 to $7—and we'd lost $80 million—I couldn't take it anymore. I phoned Ed and blurted “What the fuck is going on? This is crazy!”

“No, Tom,” Ed said. “This is the
end
of The Crazy.”

Ed tried to calm Tim and me by explaining that The Crazy had little to do with us. There was simply no correlation between the way Expedia stock was being priced and the company's true value. Expedia's stock was plummeting only because every dot-com's stock was plummeting. Ed sensed that as worthless
Internet companies crashed, genuine businesses like Expedia would find a base and recover. Forget about the numbers on the stock market, he advised us. Look at Expedia's sales. When I looked closely I began to relax. The addition of Travelscape had bolstered Expedia and sent its revenues soaring. And we're talking about the Microsoft culture, here. This was a company born with a vision of smashing through any wall put in front of it. Now that Expedia had the power of our operation behind it, it was on its way to becoming the largest seller of travel in the world.

Time proved Ed right. Expedia not only recovered, but our shares soared from $7 to $150 by the summer of 2003. When they did, we had more money than when we first signed the deal.

But as clairvoyant as Ed could be, he couldn't fathom where the sale of Travelscape would take our day-to-day lives. Neither could Tim. And neither could I. Looking back on it, these changes were much more profound than the dive and soar in the stock market.

As part of the deal with Expedia, I began overseeing staff and implementing the global hotel strategy as the two companies came together. I wanted to make sure that the transition was smooth for all the people who'd worked so hard for Tim and me at Travelscape. No way was I taking my money and running off to retire in the Land of Grey Goose. It was an important time for me. No matter how hard I'd worked and contributed to build Travelscape, I knew damn well that it had been Tim's inspiration. I needed to find out if I truly belonged at a conference table with the likes of men who ran billion-dollar businesses. So I opened myself up to learning as much as I could. And you know what? It was great. I was traveling to Europe frequently and setting up Expedia offices in London, Munich, and Paris.
After years of working sixteen hours a day, I opened myself up to a social life. Let me tell you, going out with Miss Israel at that time would've opened anybody's mind. Miss Israel of 1999, Rana Raslan, is Palestinian. I was a long way from Barnsville.

My eyes were wide to the new world in front of me. Because of that I didn't see the deep funk that Tim was sliding into. Tim didn't know what to do when he got up in the morning. Yeah, he was doing some consulting for Expedia, but his role was more detached. Most days, he had nowhere to go and nobody to see. He might have stayed in bed all day if the housekeeper didn't arrive at eight thirty every morning. Being in bed when she arrived made him feel like a loser. So he showered, dressed, and got behind the wheel of his Mercedes without any idea where he was going. Sometimes he went out for breakfast. Sometimes he went to a bookstore. Many afternoons he sat alone through a matinee. For a little while he forced himself to go out at night and act like a playboy. But that wasn't him, and he knew it.